RBS to launch UK small cap ETF

The Royal Bank of Scotland is planning to launch an ETN and an ETF providing exposure to UK small cap companies.

The bank is listing a collateralised ETN that tracks small cap indices in Frankfurt next week, alongside an uncollateralised ETN in London at the same time.

RBS also has plans to launch an ETF, tracking the same small cap index, in the summer.

The underlying RBS HGSC (Tradable) index aims to return the performance of the UK small cap universe and is made up of 200 companies from the bottom 10% of the domestic stock market by capitalisation.

The latest report into the parent HGSC Benchmark index, published in January, reveals it has beaten the annualised return on the FTSE All-Share by 3.4% per year since 1955.

RBS Global Banking and Markets head of UK mid-market equities Stephen Ford says the firm expects small and mid-cap stocks to continue to outperform the UK main market in 2011.

London Business School professors Elroy Dimson and Paul March developed the HGSC family of indices in 1987. They argue many investors remain underweight in small and mid-cap stocks, despite an outstanding long-run performance, because they wish to avoid holding large numbers of positions or are concerned about monitoring costs and liquidity.

RBS says its recent launch of a tradable version of the HGSC index offers access to the benchmark via liquid and investible products and can be embedded in a variety of wrappers including capital protected notes and exchange-traded certificates.