Kathy-Cave

Kathy Cave

Russell Investments has decisively invested back into quantitative equities by mandating a domestic manager to run about $360 million for its Australian Shares Fund.

Portfolio manager Kathy Cave said the decision to appoint AMP Capital Investors’ Australian quant equities team, overseen by multi-strategy chief Mark McClatchey, was made to gain exposure to the investment style at an opportune time in the market cycle and access a high-performing team.

“We think quant is going to do well in this environment. Having a systematic approach is good. Quants had a tough time during the financial crisis, in part because it was over-traded, and if you look at the amount [of capital] invested in quant now, there’s not as much,” Cave said.

She noted the team’s “tailored value and momentum signals”, and its use of Value-at-Risk methodology to respond well to turning points in market cycles, as further reasons to invest.

According to the Mercer Surveys, the manager returned 2.8 per cent in the three years to March 31.

“They did pretty well, compared to other managers, during the financial crisis,” Cave said.

AMP Capital replaced AllianceBernstein, “which used some quant techniques but were not quant-focused”, in the $3.6 billion portfolio.

Russell’s full-time manager researchers, James McSkimming and Nick Thomas, had monitored the team for some time as it remained closed to new investors. When capacity became available to new investors, Russell moved to invest.

In the portfolio, AMP Capital joins Orion Asset Management, Arnhem Investment Management, Balanced Equity Management, Perennial Value, Dimensional and Karara Capital in the external manager line-up.

Russell runs three internal strategies, which draw on external managers’ intellectual property, in the fund.

The M-Tracker, which nets off trades made by underlying managers and has achieved a 40 per cent reduction in stock turnover, Cave said, manages 16 per cent of the portfolio; the Select Holdings strategy, which invests in a maximum of 15 of the most popular stocks among managers, accounts for 2.5 per cent; and the Enhanced Interest strategy, a less concentrated version of select holdings which holds 40 stocks, also manages 2.5 per cent of the portfolio.

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