Russell Investment Group plans on expanding its range of separate multi-manager funds with the launch of a GTAA fund, followed by a directional hedge fund and a multi-strategy alternatives fund over the next 12 months.

The fulsome new product program was unveiled at the Russell client conference in Cairns last week by the chief investment officer for the region, Peter Gunning. He said that the GTAA fund, whose managers were being selected by the firm’s UK office, would be launched later this year, with the directional hedge fund early next year and the multi-strategy fund around the middle of the year. Gunning told the audience of about 160 super fund executives and trustees, financial planners and a contingent of New Zealand trustees that it would probably close its global opportunistic property fund this year. He reiterated Russell’s commitment to exploring new asset classes and investment strategies as the exposure to alternatives was increased in the firm’s model portfolios. Australia figures prominently in Russell’s research and implementation of these strategies, with Gunning noting that it was the first country to launch a global multi-manager listed property fund for the firm. In one of the sessions at the conference, Gunning spoke alongside Adam Goff, the UK-based managing director, manager research, and director of the ‘Edge Strategies Team’, which is charged with looking for new opportunities and markets. The team was formed early last year. Goff said that the correlations between traditional asset classes were trending upwards and the new products used alternative strategies to gain access to non-correlated sources of return. “What this adds up to is that you have to ground your thinking because asset allocation is still the most important portfolio decision,” he said. “You have to truly understand the investor’s risk preferences and manage a portfolio’s unique risk and return objectives to align clients’ needs.” With the separation of alpha and beta, there were advantages for the investor because new sources of alpha could be used regardless of their asset class origin. But dispersion of returns among alpha sources could be extreme, Goff said, and required selection skill to manage. For new sources of return to be acceptable to a portfolio they needed to have different risk premia from other investments and to show that there were pervasive inefficiencies in their markets. A recent example was “opportunistic volatility trading” on which Russell researchers had been working for about six months. “If we can get in early and see who the best volatility managers are then this is a potential new alpha source,” Goff said. Pengana Capital, coincidentally, last week launched what it said was Australia’s first volatility fund (see separate report).

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