Russell Investments has hired global fixed income firm Western Asset Management to run half of its approximately $45 million NZ bond portfolio.
The previously sole incumbent, Harbour Asset Management, will continue to manage the other half of the Russell NZ fixed income fund.
In a note to clients last week, Russell said shifting to full multi-manager model for the NZ bond fund would increase diversification and “expose investors to a wider range of investment views and ideas”.
“Harbour is a New Zealand-based asset manager whose strength lies in shorter-term management of local interest rates strategies. Their investment strategy focuses more on active duration management and spread trading, which is why it tends to be more short term in nature,” the Russell note says. “[Western] is a large, global asset manager with a strong focus on credit management. Their global macro investment approach focuses more on medium-term outcomes and will provide the Fund scope to invest in a wider range of NZD-denominated securities; most notably NZD euro medium-term notes.”
Alister van der Maas, Russell NZ chief, said Western was a “highly-rated” fixed income manager that the group already used in two Australian bond funds.
Western, which is a Legg Mason affiliate firm, has over US$435 billion under management including about $200 million from a handful of NZ institutional clients.
In June, Russell also rearranged its global bond fund, dropping PIMCO in favour of another US-based firm, Voya.
Following the Western news, Russell also confirmed the NZ bond fund would adopt the now almost universal Bloomberg NZ Bond Composite Index as its benchmark.
Last week Fisher Funds joined the Bloomberg bond benchmark rush initiated last year by AMP Capital. With the Russell fund now officially in the Bloomberg camp only ANZ remains wedded to the NZ government bond benchmark.
Russell formerly used a bespoke NZ fixed benchmark split 75/25 between the local government and corporate bond indices, respectively.
“However, since late last year, there has been a general shift away from these types of benchmarks in favour of the Bloomberg NZ Bond Composite Index,” the Russell note says. “It is our belief that the benchmark should provide a true reflection of the universe of investible securities, and a better measure of manager skill.”
The benchmark swap would not have a “material impact” on the Russell fund structure or performance, the note says, with return and tracking error targets to remain unchanged.
“However, moving to the new benchmark does internalise exposure to supranationals and Kauri bonds, which until now were ex-benchmark exposures for most managers,” Russell says.