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Friday, November 16, 2012

Russell Launches Its First Fund Managed In-House

Reported by Chris Cumming

In a strategic shift, a fund shop known for a manager-of-managers approach is launching its first fund run entirely in-house.

Russell Investments [profile] announced in a press release that it is launching a new multi-asset fund -- and, in a departure from the Russell's usual practice, it will be managed entirely by the firm's own PMs.

The Russell Strategic Call Overwriting Fund is the first non-cash Russell fund managed without a subadvisor. The fund will invest in U.S equities and sell call options on indexes.

Asked about the reasons for departing from Russell's usual multi-manager approach for this fund, Mike Smith, the consulting director for Russell's U.S advisor-sold business, told MFWire that the idea for the fund originated in a paper on managing volatility through call overwriting written by two members of Russell's derivatives team. The paper attracted client interest, Smith said, and the derivatives team applied the techniques laid out in the paper to some of Russell's institutional clients.

Advisors began to ask about accessing the strategy as well.

"The strategy offers equity-like return with lower volatility. A lot of advisor clients that we work with have been expressing a desire for this type of vehicle," said Smith. "When you combine that with all the market volatility we're seen in the past, and which we expect to continue, there was a lot of demand for the strategy."

Asked whether this launch signals Russell's intention to launch more internally managed '40 Act funds, Smith demurred.

"Most of what you'll see coming from us going forward is subadvised multi-manager products, but we're always looking for opportunities to find solutions to meet client needs," he said.

The fund's PMs will be the two authors of the call overwriting paper, Scott Maidel and Karl Sahlin, along with Richard Johnson Jr. and Rafael Zayas.

Smith was enthusiastic about the new fund as well as the new approach.

"It's a little bit new for us, to be working with advisors and individuals on this call-overwriting strategy," he said. "We're pretty fired up about it at this point."

The press release follows.

New Russell Strategic Call Overwriting Fund: Responds to advisors seeking a strategy for lower-volatility, equity-like returns

Managed entirely by Russell portfolio managers, new fund leverages firm’s multi-asset investing strengths to broaden advisors’ investment toolkits

SEATTLE, November x, 2012 – In response to significant interest among financial advisors in Russell’s proprietary call overwriting strategy, Russell Investments has launched the Russell Strategic Call Overwriting Fund. The new Fund provides advisors and their clients with access to the first non-cash retail fund managed directly by Russell’s portfolio managers without underlying managers. The Fund aims to provide total returns with lower volatility than U.S. equity markets, seeking gains from writing call options and from its equity portfolio and seeking income from dividends on stocks held.

“In our conversations with advisors, we have consistently heard that they are looking to provide clients with a call overwriting strategy to support long-term wealth creation while managing overall portfolio volatility,” said Phill Rogerson, managing director of Consulting and Product Development for Russell’s U.S. advisor-sold business. “Interest has only increased in the current volatile market environment and we are pleased to be able to activate Russell’s proprietary research in a mutual fund format that provides advisors and their clients with a key tool to employ this investment approach.”

The launch of the Russell Strategic Call Overwriting Fund follows several enhancements to Russell’s multi-asset portfolios and retail product offerings, including the launch of the Russell Multi-Strategy Alternative Fund and Russell U.S. Strategic Equity Fund as well portfolio reallocations and Fund strategy changes to incorporate insights based on the Russell Stability Indexes style-based benchmarks.

Overview: Russell Strategic Call Overwriting Fund

The Russell Strategic Call Overwriting Fund invests principally in equity securities economically tied to the U.S. market, using a multi-factor quantitative model to select primarily common stocks of large and medium capitalization companies. The Fund also writes (sells) index call options, typically on broad-based securities market indexes. The combination of buying common stocks and selling call options is known as “call overwriting.” Writing index call options is designed to reduce the Fund’s volatility relative to U.S. equity securities and provide the Fund with gains from premiums received.

  The Fund is managed by a team of four Russell portfolio managers: Richard F. Johnson, Jr., CFA (Chartered Financial Analyst); Scott A. Maidel, CFA, CAIA (Chartered Alternative Investment Analyst) and FRM (Financial Risk Manager); Karl D. Sahlin, CPA (Certified Public Accountant); and Rafael Zayas, CFA.

  “In the current market environment of uncertainty and limited growth, many advisors are shifting away from a classic long equities growth strategy,” explains Rogerson. “This Fund is in response to those wealth managers who ask us for strategies that can provide investors with attractive risk-adjusted returns and a potential reduction of losses during market downturns. We believe this responsive solution, launched with these advisors in mind, can provide value to them and their clients in order to improve portfolio outcomes.”

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