Russell Investments has added two new managers to its international fixed interest fund while reducing allocations to incumbents and layering on a novel currency “positioning strategy”.
Al Jalso, Russell global bond fund portfolio manager, said the revised approach reflects the need to manage liquidity, introduce further diversity and add value in an increasingly challenging fixed income market.
Following the changes, UK-based fixed income managers BlueBay Asset Management and Insight Investment Management will take up 10 per cent and 15 per cent, respectively, of the Russell fund.
In an information sheet, Russell said the revamp should “increase the diversity of multi-sector managers and the global footprint of the underlying investors, as well as the potential levels of expected return as Insight and BlueBay focus intensely on establishing strong global bond track records”.
At the same time, Loomis Sayles and PIMCO will see their allocations reduced to 17 per cent from 30 per cent and 25 per cent, respectively. Colchester, meanwhile, has had its mandate trimmed from 30 per cent to 24 per cent.
London-based Jalso, in NZ last week for client visits, said while the two new managers are familiar to Russell – the firm uses them in other funds – they will be pursuing fresh global strategies outside their traditional regional ambits.
“We like getting in early with managers,” he said. “Managers tend to perform strongly in the early phase… that should deliver value, and it’s very difficult to find value in fixed income right now.”
Jalso said post-GFC it was easier to derive value in fixed income markets, for example, by investing in niche US securities mortgage manager, Brookfield – which retains its 10 per cent allocation in the Russell fund.
As part of the product re-engineering, Russell will also shift out of its Absolute Return Bond Fund (previously weighted at 5 per cent) and allocate 7 per cent to a new currency-focused “positioning strategy”.
“… the recently introduced positioning strategy will employ a dynamic strategy focusing on value, trend, and carry currency factors,” the Russell factsheet says. “Historically, currency strategies have had low correlations with interest rates and credit, offering the potential to diversify away from traditional fixed income risks without taking on equity-like risk.”
The strategy will be implemented via currency forwards, an enhanced cash portfolio composed of “high quality and short-dated corporates and governments” and other derivative instruments.
Jalso said with more volatility likely in global fixed income markets, liquidity management would assume a more important role.
“We wanted to hedge the portfolio against a liquidity crunch,” he said. “We’re not necessarily expecting one but [with more volatility] we need to buy some insurance.”
The Russell Global Fixed Income Fund (NZD hedged) has about $1.2 billion sourced from NZ investors.
BlueBay, a bottom-up credit manager owned by the Royal Bank of Canada, currently has roughly £40.2 billion under management. BNY Mellon subsidiary, Insight, which recently purchased US bond manager Cutwater Asset Management, is a “macro sector rotator” with approximately £362.5 billion in assets.