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CLIENT FOCUS (continued)
manager). But multi-asset’s holistic view
means that we allocate risk at the total fund
level, not asset-class-by-asset-class. So we
were able to hire the manager knowing
that its risk is diversified elsewhere in the
portfolio – and the early results have paid
off handsomely to date.
By approaching portfolio construction
and risk management with a total portfolio
view, it is possible to gain better alignment
between the portfolio and the end goals
being pursued: What’s best for the total
portfolio is not necessarily the same as
what’s best if each part is being managed
independently.
MANAGE: BEING DYNAMIC ACROSS
ANDWITHIN ASSET CLASSES
The strength of the case for each strategy
and each asset class fluctuates over time,
and the multi-asset approach allows for
dynamic portfolio management not only
within asset classes, but also across
them. (See the article later in this issue
of Communiqué for more on how Russell
Investments approaches dynamic portfolio
management.)
For example, in early 2016, we took the
view that exposure to high-yield credit
(corporate-issued bonds) was more
attractively priced than exposure to the
stock of those same corporations (equity).
So, at the margin, we preferred exposure to
corporations’ debt than to its equity. Timely
and precise changes to a portfolio such as
this can add up to significant value-added
over time.
Behind a fully-developed multi-asset
approach, there needs to be a world
class implementation capability. Credit
exposure, for example, can be expensive
to trade if insufficient attention is paid to
how positions are built and managed. The
dizzying choice of trading instruments
available to today’s investor includes not
only physical securities and derivatives
such as futures, but also more complex
exposures such as options or other
complex derivatives. Each can play a
role in the essential task of cost-effective
implementation.
CONCLUSION:
A STRENGTHENING CASE
So, with the ever-growing complexity and
ever-widening range of choices available
to institutional investors, we believe that
the case for multi-asset management will
continue to strengthen in the coming years.
When we first started presenting the case
for multi-asset to U.S. clients in 2011 and
2012, our flagship U.S. multi-asset funds
had only recently been launched, and had
no live track record to point to. This year,
we were able to show not only a track
record that was above the benchmark (as
of 5/31/2016,) but one which chalked up
positive contributions from each of the
design-construct-manage elements around
which we have built our process. (See
performance details at end of this article.)
We expect that this sector will continue to
evolve in the years to come, for example,
through ever-greater customization to
particular goals such as a growing focus
(for pension plan investors) on “surplus
space” results.