MutualFundWire.com: Expanding Long/Short MF Strategy, Within Limits
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Wednesday, May 9, 2007

Expanding Long/Short MF Strategy, Within Limits


Russell Investment Group has moved to add more limited long/short strategies in managing its Quantitative Equity and Equity Q mutual funds. A new 130/30 strategy, announced Tuesday, will expand the company's long/short tool belt beyond the 120/20 strategy introduced last August.


TACOMA, Wash.--(BUSINESS WIRE)--Russell Investment Group is expanding its use of limited long/short strategies in its Quantitative Equity and Equity Q mutual funds. This strategy, which changes the existing assignment of Aronson+Johnson+Ortiz to a 130/30 strategy, is intended to provide upside return potential without significantly increasing risk at the total fund level. A limited long/short strategy allows money managers more freedom to apply their stock selection skills and thereby attempt to maximize the value of their insights regarding both stocks they consider will outperform and those that they consider will under perform.

“As financial professionals seek investment innovations for clients, they want to maintain a holistic view – evaluating quality, managing risk and assessing the impact on the total portfolio,” said Tim Noonan, managing director, Russell Investment Group. “While there are a multitude of standalone alternative products available, it can be difficult and time consuming for financial professionals to comprehensively evaluate these new strategies and then build them into existing client portfolios. Russell objectively finds who we believe are some of the best practitioners of these innovative strategies and then incorporates them into our existing mutual fund format, giving financial professionals who work with Russell a streamlined and accessible approach that they can easily leverage on behalf of their investors.”

With today’s announcement, Russell continues its history of innovative investment thinking and builds on two other recently introduced strategies. The addition of the 130/30 long/short strategy follows the August 2006 addition of another limited long/short strategy, a 120/20 strategy, by another of the funds’ managers, Jacobs Levy. Also, several Russell multi-manager funds, including the Quantitative Equity and Equity Q mutual funds, now employ a “Select Holdings” strategy, a propriety Russell approach designed to increase the exposure to stocks that are viewed as attractive by multiple money managers.

“No one knows managers like Russell, and these new investment strategies leverage that proprietary expertise to find potential new alpha sources and a more sophisticated and effective means of balancing the risk/return equation,” said Tom Hanly, chief investment officer, Russell Investment Group. “In today’s market, stock selection is the most consistent source for what many investors want – excess returns – and Russell has the ability to identify the managers who are among the very best at selecting stocks.”

Long/short strategies allow a quantitative manager to short individual stocks and invest the short sale proceeds in additional long share purchases, providing the manager with more freedom to apply their skills, both in choosing investments and diversifying risk. As a manager of managers, Russell is able to identify those quantitative managers who can demonstrate the sophistication to measure and manage risk, the operational ability to manage short positions effectively, and an inclination to make active plays of sufficient size to take advantage of the mandate. Russell will hold more than $5.3 billion in limited long/short strategies in its funds, and is among the largest purchasers of these innovative strategies in the world, based on research conducted by Russell’s manager research team.

“Quantitative managers have the ability to forecast future returns using a variety of factors,” said Noel Lamb, Russell Americas chief investment officer. “This gives them the edge in employing limited long/short strategies, which we’ll likely see become commonplace over the next few years.”

Several Russell multi-manager funds employ a “Select Holdings” strategy. In implementing the select holdings strategy, Russell analyzes the holdings of a Fund’s money managers within their Fund segments to identify particular stocks that have been selected by multiple money managers. Russell uses a proprietary model to rank these stocks. Based on this ranking, Russell purchases additional shares of certain stocks for the Fund. The strategy is designed to increase the Fund’s exposure to stocks that are viewed as attractive by multiple money managers. Implementation of this strategy includes periodic rebalancing of the holdings.

As with all investment strategies, the Select Holdings and long/short strategies carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to increase return could, at certain times, unintentionally reduce returns.

Russell Investment Group provides investment products and services in more than 44 countries. Russell manages $203 billion in assets as of March 31, 2007.


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