Global Unconstrained Equity Fund

Transcription

1 FUND BROCHURE Global Unconstrained Equity Fund Delivering the very best of Russell s investment capabilities FOR PROFESSIONAL INVESTORS ONLY

2 A more efficient active global equity strategy Russell s Global Unconstrained Equity Fund delivering the very best of Russell s investment capabilities Introduction FUND OVERVIEW PORTFOLIO MANAGER Neil Jenkins, over 25 years experience INVESTMENT APPROACH Multi-manager, long-only equity portfolio Over the last 20 years, there has been a strong move from regionally constructed international equity portfolios to portfolios managed on a truly global basis. Although there are compelling arguments in favour of a fully global approach, it is becoming widely recognised that in many cases, regional specialists can provide unique sources of added value (alpha). At the very least, it is clear that global and regional approaches offer different (and uncorrelated) sources of excess return. Russell research (and more importantly, Russell s actual experience) has found that a carefully risk controlled combination of global and regional specialists results in a more consistent excess return outcome and a lower tracking error: in other words, a more efficient active equity strategy. The Fund is based on the methodology we have implemented successfully for more than seven years and is suitable for investors looking for a more efficient approach for the active global equity component of their investment strategy. Investors will benefit from the sophisticated approach of managing market (beta) and manager (alpha) exposure independently, but holistically, through multiple globally and regionally managed portfolios. BENCHMARK Russell Global Developed Markets Index RISK/RETURN OBJECTIVES 2% (gross), 3.0% tracking error vs. benchmark LIQUIDITY Daily FUND STRUCTURE Irish Common Contractual Fund The Global Unconstrained Equity Fund alpha strategy is achieved through a combination of Russell s highest-conviction manager ideas, regardless of geographical domicile or market segment An innovative investment strategy proven by experience We believe that both global and regional mandates have their merits and combining them intelligently through an informed risk controlled portfolio management process results in attractive alpha diversification benefits. Russell s Global Unconstrained Equity Fund is designed to do exactly this. The Fund s alpha strategy is achieved through a combination of Russell s highest-conviction manager ideas, regardless of geographical domicile or market segment. We capture these best ideas by combining global and regional manager components and using direct investment and implementation techniques to capture excess return opportunities. The portfolio is benchmarked to a traditional long-only global equity benchmark and is well suited for any strategic allocation to global equities. The market exposure risk is managed via an overlay using equity futures and currency forward contracts to manage risk caused by any unintended benchmark-relative market exposures as a result of the alpha driven manager choices. Crucially, this means that the portfolio s alpha strategy is not constrained by the geographical breakdown of the Index. The ability to pursue excess return opportunities unconstrained by geographical domain or market segment and then cost effectively port this excess return onto a traditional global equity index is fundamental to this new approach to managing global equities. As illustrated in figure 1, the alphas from regional and global managers have historically been very lowly correlated, offering an attractive alpha diversification opportunity. This is not surprising given that global and regional managers often seek value from different areas of the market.

3 Figure 1 Correlations of manager alpha across regions UK Europe ex-uk Japan Asia Pac ex-japan Emerging Markets Global UK 1 Europe ex-uk Japan Asia Pac ex-japan Emerging Markets Global Source: Russell. The table shows the correlation of the median manager s excess performance (gross of fees) within the manager universe in each region over the 5 years from January 2007 to December The chart below demonstrates this principle in practice using the performance history of a representative account managed by Russell according to the investment strategy outlined in this document. The solid vertical lines show the difference between the highest and lowest excess return managers in the portfolio over each month. The orange dots show the total portfolio s excess return experience over the corresponding month. The diversification effect of combining uncorrelated sources of excess return is immediately evident. Lastly, the light blue line shows the cumulative excess return of the total portfolio since inception in July Russell has been using a similar approach to managing client assets for the past seven years. In March 2005, we launched Russell s Alpha Fund which aims to capture alpha in the most inefficient asset classes, using managers with the greatest opportunity to generate excess returns. In this fund, alpha is transferred onto a cash benchmark using derivatives to neutralise market and currency exposure. In addition, for the past five years Russell has successfully used the global unconstrained equity investment approach to manage bespoke discretionary portfolios. These complex assignments draw on the same combination of core competencies that are unique to Russell: capital markets research, manager research, portfolio construction, portfolio implementation and indexes. On winning an industry award for the portfolio managed by Russell, a pension fund client publicly commented: We were impressed by the depth and coverage of their research and their experienced implementation resource we believe this [favourable investment] outcome supports our view that alpha is best accessed by imposing as few constraints as necessary and unlocking talent to add value, supported fully by a governance structure which is flexible and allows speedy response to developing market conditions, and secondly by intelligent implementation protecting the value created. Representative Global Unconstrained Equity Portfolio Performance Cumulative Excess Fund performance Jul-07 Fund Excess Return Cumulative Excess Return Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Source: BBH, custodian, Russell. As at 29 February 2012, since inception date (19 June 2007). Performance gross of fees

4 We believe that this fund brings together a unique combination of skills and experience which are not available elsewhere through one product What differentiates this global equity product? In addition to combining global and regional mandates, and the corresponding added value and diversification benefits this brings, we believe that this fund brings together a unique combination of skills and experience which is not available elsewhere through one product: Together these capabilities bring the following benefits to our clients: Unconstrained access to Russell s highest conviction manager ideas: informed by Russell s deep manager research capabilities in all regions of the world, the fund s portfolio manager has the freedom to choose our highestconviction managers regardless of whether they are regional or global specialists, quantitative or fundamental, long-only or limited long/short strategies. This increases manager choice and potential sources of excess return The portfolio aims to acheive high benchmark-relative performance but with lower risk: the diversification benefit of combining global and regional managers affords the portfolio manager the flexibility to hire more aggressive, unconstrained managers in the pursuit of alpha. Crucially, this approach results in lower expected tracking error at the total portfolio level when compared to traditional global equity mandates. An actively managed portfolio to deliver additional sources of excess return: the portfolio manager has the flexibility to increase or decrease exposure to various strategies growth versus value, cyclical versus defensive, quantitative versus fundamental or regional versus global to benefit from structural and cyclical alpha opportunity changes. Russell s Enhanced Asset Allocation capability informs this part of the investment process. A commingled fund structure provides strong governance and cost control: one of the key features of multi manager funds is the ability to deliver an investment portfolio which would otherwise be purely the preserve of the largest and most sophisticated investors due to both the punitive cost of hiring managers as well as the investment, operational, legal and compliance burdens around managing any investment. Global Unconstrained Equity Current Strategy Allocation Japan Market Oriented 6% U.S. Large Cap Value 6% U.S. Large Cap Value 9% U.S. Value 9% Japan Value U.S. Value Asia Pacific U.S. Growth Investment capabilities Diversified sources of alpha Embedded transition management Investment insights Multi-manager portfolio Market views Europe Quant 2% Europe Market oriented Europe Market oriented Europe Growth Global Equity Long/Short 9% Global Value 10% Global Defensive Growth Global Aggressive Growth U.S. Growth Dynamic portfolio management Enhanced Asset Allocation and portfolio tilts Efficient implementation Enhanced portfolio implementation Beta overlay Common Contractual fund structure FX management Global Unconstrained Equity Fund For illustrative purposes only

5 The multi-asset team responsible for this investment approach now manages 3.7 billion of assets across 9 portfolios in EMEA 1 Russell is uniquely placed to manage this strategy Portfolio construction +$140 billion in assets under management (as of 31 December 2011) Top-four consultant, with $2 trillion under advisement (P&I, December 2010) World s largest outsourced fiduciary manager (P&I, July 2011) Our ETF capabilities create focused exposures investors can use and are designed to cost-efficiency implement exposures in portfolios Capital markets insights Our portfolio managers are supported by a dedicated investment strategists team located around the globe Manager research Investment strategies that have a sustainable advantage over the market. Recognized for our depth of research and quality of manager selection, with more than 8,000 manager products monitored (as of 31 December 2011) Ranked #1 in manager due diligence in 2011 survey (FundFire) Portfolio implementation Recognized as a top-tier broker based on the quality of trading execution (P&I, November 2011) Best-in-class transition management (Global Investor 2011 transition management survey) Recognized by aicio as a leader in currency management Indexes The Russell Global Indexes calculate over 50,000 benchmarks daily covering more than 10,000 securities. More U.S. institutional investors use Russell Indexes than all other providers combined (as of 31 December 2011). 1 Data correct as at 29 February 2012

6 For more information: Call: +44 (0) Visit: IMPORTANT INFORMATION This material is not intended for distribution to retail clients. This material does not constitute an offer or invitation to anyone in any jurisdiction to invest in any Russell product or use any Russell services where such offer or invitation is not lawful, or in which the person making such offer or invitation is not qualified to do so, nor has it been prepared in connection with any such offer or invitation. Unless otherwise specified, Russell Investments is the source of all data. All information contained in this material is current at the time of issue and, to the best of our knowledge, accurate. Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and, unless it relates to a specified investment, does not constitute the regulated activity of advising on investments for the purposes of the Financial Services and Markets Act Issued by Russell Investments Limited. Company No Registered in England and Wales with registered office at: Rex House, 10 Regent Street, London SW1Y 4PE. Telephone Authorised and regulated by the Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS. 085/April 2012