Asset Allocation Core Beliefs
Equity Risk Premium - Russell believes equities will generate higher returns than investment grade aggregate fixed income or cash over a market cycle.
Illiquidity - Russell believes a competently managed exposure to illiquid assets will generate higher returns than comparable liquid assets in many market environments.
Active Manager Skill - Russell believes skillfully selected active investment management can add value over passive investments, and that we have a demonstrated ability to identify skillful investment managers.
Global Orientation - Russell believes that investors should hold globally diversified portfolios, taking into consideration the entire range of investment opportunities.
Asset Class Strategic Beliefs
Value - Russell believes that, over the very long term, value stocks will generate higher returns than growth stocks.
Quality - Russell believes higher quality stocks will consistently generate higher returns than lower quality stocks. Higher quality may be defined by fundamental security characteristics or lower historical return volatility.
Equity Momentum - Russell believes that high momentum stocks will generate higher returns than low momentum stocks over a market cycle, but may introduce short-term reversals. Momentum may be defined by relatively strong recent price performance over the last year or, less commonly, relatively strong recent earnings.
Size - Russell believes that there are long-term advantages to overweighting smaller-capitalization stocks and that these are best captured through active management and well-researched factor exposures.
Volatility - Russell believes higher volatility stocks do not provide sufficient return to compensate for the additional risk.
Fixed Income Related
Credit Risk Premium - Russell believes that bonds with credit risk will generate higher returns than those of comparable high-quality government securities over a market cycle. Russell places a particular emphasis on shorter-term credit issuances and high-yield bonds.
Term Risk Premium - Russell believes longer-term bonds will generate higher returns than comparable shorter-term bonds or cash. These higher returns result from expectations of future interest rates, liquidity preferences and practical constraints on borrowers and lenders.
Real Yield - Russell believes that bonds issued by sovereign countries with higher real yields have a greater likelihood of outperforming those with low real yields.
Implied Volatility - Russell believes the implied volatility in options, such as puts and calls, is consistently higher than the volatility realized in the market by the physical securities they represent. Therefore, using options-based strategies to capture the priced difference between implied and realized volatility will generate a positive return.
Currency - Russell believes currency can generate higher returns than cash through the use of systematic strategies. The currency return sources are carry, valuation and trend.
Commodities - Russell believes that an allocation to commodities, implemented with futures, will generate a higher return than cash over a market cycle via systematic and active strategies. These higher returns result from spot price appreciation, the term structure of commodities futures, and the employment of active strategies.
The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.
The information shown above is subject to change at any time without notice. Not all beliefs may be implemented in a Russell fund or portfolio. The implementation of beliefs could cause a portfolio to underperform to a greater degree than if it had not been implemented.
Not all strategies will be suitable for all investors.
This material is not an offer, solicitation or recommendation to purchase any security.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.
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First used: July 2015