Russell Investments has continued to increase the proportion of funds it implements on their underlying managers’ behalf, but global chief investment officer Peter Gunning is adamant the fees it pays the managers will not be affected.
Russell now holds back 30 per cent of its Australian equity portfolio from the dealing desks of the underlying managers. Instead, it takes from its custodian an aggregated picture of the managers’ trading activity in the ‘live’ part of their mandates, subject to a time lag, and implements the 30 per cent portion itself.
Russell’s Implementation Services team seeks to “net off’ opposing trades being made in the same security, and not make those trades deemed immaterial to the portfolio as a whole.
For the three years that the “enhanced portfolio implementation” (EPI) approach has been running, Gunning said annual turnover in the emulated portfolio had averaged 50 per cent, versus 85 per cent for ‘traditional’ portfolio implemented by the underlying managers. There had been over 12,000 trades made in the ‘traditional’ portfolio, versus just 1500 in the version implemented by Russell.
He said performance of the two sections was similar enough that “we are confident we are not losing any alpha”.
As the EPI concept entrenches itself further in Russell International Shares Fund and, more recently, its UK Equities Fund, Gunning said the multimanager had no intention of reducing the fees it paid to its managers.
“You might intuitively say that because we are asking them to do less for us, but it’s their investment ideas that we are really after.”