Best Multi-sector Funds
A growing exposure to alternative assets gives a portfolio extra firepower
Once again Russell heads the winners’ list for this award, as it has done for several years. And for good reason. “Russell multi-sector is a functional choice for investors seeking a one-stop shop,” says Morningstar analyst Tim Wong.
Russell Balanced A invests roughly even amounts in local and global shares as well as listed property, fixed income and cash, as do most multi-sector funds. But where it differs from the norm is in its strategic allocation to alternatives, which was 12.5% at June 30, 2018. This is far more than what most other funds allocate, having grown steadily since 2013, says Morningstar in a July 2018 analyst report.
“This was part of a broader set of shifts designed to prepare for an expected environment of relatively low returns and high volatility,” says Wong. “The end portfolio aggregates a range of Russell’s single-sector multi-manager funds, which mostly contain external managers with a dash of internally managed strategies.”
According to Wong, this approach has merits. It means Russell can replicate the exposures of its managers costeffectively through its scale and trading capability, as it does for Australian equities. “It can also act nimbly when it foresees issues of concern or areas of opportunity, and its widening tactical asset allocation bands (TAA) have allowed for higher-conviction calls. That said, these tactical decisions do require successful timing, which is a hard skill to find,” says Wong.
The Russell Conservative A fund, joint winner of this award, also has a higher than usual allocation to alternatives – 11.5% at June 30, 2018, says Morningstar in a July analyst report.
“The team sets a strategic asset allocation using the research and analysis of Russell’s multi-asset group,” says Wong. “The process includes stress tests incorporating more detail, such as fixed-income credit ratings and the greater likelihood of extreme scenarios, to gauge the robustness of the strategic asset allocations.”
The fund’s asset allocation is reviewed annually, and the team uses the opportunity to make adjustments.
“The Sydney-based team also engages in tactical asset allocation, tilting portfolios when it identifies mispricing and catalysts for correction,” says Wong. “These tactical tilts can allow the portfolio to deviate from the strategic asset allocation by plus or minus 5%.”