Russell Investments Multi-Asset Implementation Portfolio Manager Daniel Choo talks about how the Russell Investments Multi-Asset Series aims to deliver higher returns with less risk over the longer term.
Jessica Amir: Thanks for tuning into the Finance News Network. I'm Jessica Amir, and today I'm joined by Russell Investments portfolio manager, Daniel Choo. Daniel, welcome to the Network.
Daniel Choo: That's for having me.
Jessica Amir: So first up, let's just start with your outlook for investors in this current stage of the market.
Daniel Choo: What a critical juncture right now in terms of investment markets. Over the last 30 years, we've had strong equity market returns and also strong fixed income returns. But if you think about cash rates right now, where they're at, they're at one per cent compared to 10 per cent that we've seen in prior decades, this means it's going to be harder to generate returns going forward, and we have to work our capital even harder as asset allocators.
Jessica Amir: So Daniel, what do investors have to do to really navigate this type of market?
Daniel Choo: If we zoom into 2019, so I started with a super long term. Let's zoom into 2019, we believe we're in a late cycle. It's been 10 years since the GFC, the Global Financial Crisis, and we right now believe that we are in the late cycle. Valuations are expensive, there's uncertainty, there's higher risk in the market. So what we're doing in our portfolios is to make sure that when we find opportunities, we invest in them with conviction, but at the same time, when it rallies that we take profits, and we do that again and again and again, in the late cycle, until the signals change.
Jessica Amir: Now, I'd like to dive into the Russell Investments managed portfolios. How do they benefit investors and tell us about the offering as well.
Daniel Choo: So the offering itself, the managed portfolios is one in which we well researched. We spent a while now, we've been patient and building this product, and we believe it can really benefit investors.
The product itself has three different components, and Aussie equities direct portfolio, in which our portfolio managers, the Aussie equity specialists have handpicked stocks depending on the characteristics of these stocks. For example, we favour stocks that are cheap, that have good quality, in terms of their balance sheets, that have positive sentiment and can do well in uncertain markets. Stocks like BHP (ASX:BHP) that have strong momentum recently, and is still relatively cheap and have commodity support in terms of spot prices, kind of the stocks that we select and pick. We've also over weighed banks right now due to the yield and the ability to pick up on that yield in a low interest rate environment, is important for us.
Then moving onto the next part of the portfolio, it's the dynamic real return strategy. That's really the engine of the portfolio. I talked about this responsiveness in the late cycle. This engine is able to react and respond to the different parts of the cycle. And again, we're in the late cycle. And then thirdly, we invest in passive ETFs. Think of these as completing the portfolio. There's a completion part. We want to invest in fixed income and equity markets as well as different regions and credit markets, and will tilt between these.
Jessica Amir: So thanks for the thorough explanation, but maybe you can tell us what really sets your solution apart from its competitors and others in the market.
Daniel Choo: So the uniqueness of the strategies that we're able to take three components, put them into a total portfolio, and then plug and play into our global process. So we've been running active multi-asset funds for many decades now. And so, being able to bring this to the Australian market as a standalone product, is something that we're proud of. It's well researched, it's backed by capital market research, asset allocation research, as well as active manager research. But what we've been able to do is really finesse this product. An example of this and what we really want to bring is this responsiveness as well, that's another unique factor. the Dynamic Real Return Strategy that sits at about 35 per cent across all four models, is able to respond.
I'll give an example of this. So in 2016, as an example for the Dynamic Real Return Strategy, we invested in high yield bonds, which are heavily discounted. So what we did is we added 20 per cent to the Real Return Strategy. Sticking to our disciplines, when it rallied, we then sold it and took profits. And this was a way of managing the responsiveness to the market.
Jessica Amir: So advisors are increasing the using solutions like yours to structure portfolios. So for advisors in the market, how are they going to use your solutions to do just that?
Daniel Choo: Yeah, we want to really partner with advisors. We're going to bring them on a journey. So for example, we talked about the regime and being very regime aware. We want to be able to communicate where we are on the regime, what we're going to do in this regime, but also communicate where we're heading to in turn, so the next regime. The structure itself for the managed portfolios, are tax effective, cost effective as well as transparent, and we're building this at a compelling price point.
Jessica Amir: And just lastly, Daniel, before we let you go, what can investors expect with Russell Investments managed portfolio?
Daniel Choo: With Russell Investments managed portfolio, there's a real alignment of goals for investors. Over the next cycle, we believe that returns will be lower. So we've got to work that capital harder and be able to add more value. That alignment is something that we're really proud of in terms of our process. We've purpose built that.
We believe that we've got a dedicated global team that sets, stands and backs and supports this product, and as a result, we're proud of bringing this to the Australian market.
Jessica Amir: Wonderful. Well, thank you so much for your insights. It's been very informative, Daniel Chu.
Daniel Choo: Thank you very much.