At Russell Investments, we believe that skilled active managers have a high probability of outperforming passive alternatives over a market cycle and that disciplined manager research can identify skilled active managers. In fact, we have incorporated specific skill expectations into the capital markets assumptions that we use in constructing strategic asset allocations. These expectations include excess return, tracking error and correlation forecasts for all assets.

This paper discusses the importance of active manager skill and how adding return to a multi-asset portfolio via active management may actually reduce risk while improving returns. We validate our beliefs directly through an examination of our track record of identifying outperforming managers.

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Article also available in Communique – Summer 2017