Download Emerging Markets Extended Opportunities Fund

FUND BROCHURE
Emerging Markets
Extended Opportunities Fund
Exploiting increasing diversity in investment opportunities
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Exploiting increasing diversity
in investment opportunities.
Differentiated Active Opportunities
The number of managers and investment
products focused on emerging markets has
increased significantly over the last few years
and the more liquid areas of the market have
become increasingly crowded.
Consequently, the expectations for active
returns are becoming more differentiated
across different segments of the asset class. In
some areas they are converging with those we
would expect from more developed countries.
However, we believe the active opportunity
is enhanced in less developed areas of the
market where higher levels of inefficiency
and increasing breadth provide a powerful
combination for specialist managers to explore.
The acceleration in the development of emerging
markets provides new opportunities for investors
to consider. Specifically, making a dedicated
allocation further down the cap spectrum and
in the frontier markets (new emerging markets)
provides significant active return opportunities.
Fund Overview
Scott Crawshaw
16 years of experience
MARKET
CAPITALISATION
(USD)
Investment strategy
CHINA
KOREA
BRAZIL
TAIWAN
RUSSIA
INDIA
SOUTH AFRICA
MEXICO
MALAYSIA
INDONESIA
THAILAND
CHILE
TURKEY
POLAND
COLOMBIA
PHILIPPINES
KUWAIT
QATAR
PERU
NIGERIA
ARGENTINA
UAE
EGYPT
HUNGARY
MOROCCO
CZECH REPUBLIC
BANGLADESH
CYPRUS
PAKISTAN
PAPUA N.GUINEA
JORDAN
BAHRAIN
UKRAINE
OMAN
VIETNAM
ROMANIA
SRI LANKA
SLOVENIA
KENYA
MAURITIUS
CROATIA
TUNISIA
TRINIDAD & TOBAGO
KAZAKHSTAN
MALTA
GHANA
ESTONIA
JAMAICA
SERBIA
BOTSWANA
LITHUANIA
GABON
BULGARIA
SLOVAKIA
TANZANIA
CANADA
PANAMA
MACEDONIA
BRITISH VIRGIN
ZAMBIA
ISLE OF MAN
Greater Inefficiencies
Fund manager
MCAP<0.5bn
Benchmark
Russell Extended
Emerging Markets Index
Return and risk
expectations
3% (gross), 5.0% tracking
error vs. benchmark
Liquidity
Weekly
0.5bn<MCAP<1bn
Greater Inefficiencies
Multi-manager, long-only
equity portfolio
1bn<MCAP<3bn
3bn<MCAP<5bn
5bn<MCAP<10bn
10bn<MCAP<15bn
15bn<MCAP<25bn
MCAP>25bn
Market
Increased Alpha Potential
Source: Russell Global Indexes, Bloomberg: as at 8th August 2011. Colour of cell within heat map reflects an expected alpha score based on
a multifactor model incorporating the level of analyst coverage and liquidity as underlying factors. Alpha potential is only representative of a
relatively stronger active opportunity in smaller cap and more frontier-like countries in the asset class. This is no guarantee of higher returns
(active or absolute) in these areas. For illustrative purposes only.
Benefits of the Emerging Markets Extended Opportunities Fund
Emerging markets have grown significantly over
the last decade and the opportunities for active
management are evolving constantly.
The Fund enables the investors to exploit the
full diversity of these new opportunities and to
benefit from the potential of higher excess returns
through a robust, diversified fund solution.
• Enhanced return potential – the Fund places
greater focus on subsets of the asset class that
remain under-researched and less congested
with global investors. The portfolio’s active risk
is deliberately skewed to these less efficient
parts of the opportunity set and as a result
the Fund has a larger exposure to mid/small
cap stocks and frontier markets than a ‘typical’
global emerging markets portfolio.
• Access to niche, specialist managers
– Russell’s dedicated manager research
capability provides access to regional,
country and cap-focused specialist managers.
These managers may be subject to capacity
constraints and might not be accessible to
other investors.
• Customisation – Russell invests in highlycustomised segregated mandates rather than
off-the-shelf products. This enables us to take
full advantage of each manager’s particular
strengths. Russell’s Index Group has built
new indices to benchmark both our Fund and
manager universe to ensure we access the full
spectrum of return opportunities.
• Expertise – Russell has been managing
emerging markets funds since 1987 and our
experience and expertise allow us to combine
“niche” strategies into a diversified portfolio
effectively. The Fund benefits from robust
risk and liquidity management and efficient
implementation.
Money Manager Oversight
To access opportunities with the potential for higher alpha, the Fund bears higher liquidity and organisational risks. In order to
manage these risks, Russell places significant emphasis on manager research, manager selection and due diligence.
In order for a new third-party manager to be appointed to a Russell Fund, our dedicated Manager Oversight Team carries out a
comprehensive, on site operational and compliance review. This is independent of our manager research team which is tasked
with identifying best-in-class investment propositions. Separating these two distinct functions allows Russell to have true specialists
concentrating on these two vital elements and is one of the reasons why Russell’s manager due diligence is so well regarded by
the market.
Comprehensive Coverage
of Managers
Our historical coverage of Global EM and Asia
regional strategies has been supplemented through
our broader research of regional strategies,
cap-specific and country-specific strategies
including frontier markets. Our experience and
resources enable us to cover a broad range of
emerging markets specialist managers and have
led to discovery of new firms and niche players
to the market.
Emerging and Frontier Markets – Russell’s Manager Coverage
700
600
500
400
2011
300
200
100
0
2004
2005
2006
2007
2008
2009
2010
2011
Products Monitored
China A-Shares
Emerging Europe
Global
China H-Shares
Latin America
India
Middle East & Pan Africa
Korea
Vietnam
Greater China
Asia ex Japan
Source: Russell Investments, as at 31st October 2011.
Innovative Implementation
In our view, the less efficient parts of emerging markets offer higher return potential and so our regional mandates are customised
to ensure we exploit these opportunities. For example, our African mandate is unusual in that the South African exposure is capped
at 20% with the majority of the portfolio focusing on sub-Saharan Africa.
In addition, we built an Investment Strategy Portfolio which allows us to actively manage the portfolio’s total risk. The ISP is
designed to provide a return pattern to a specific sub-style of investing and provides a cost-effective means of adding exposures
to identifiable gaps in the Fund’s structure. This enables us to improve the Fund’s diversification and reduce any scenario
dependency in its profile.
The significant growth and acceleration in the development of
emerging markets provide new opportunities for investors to explore.
Initial Fund Structure
Fund Structure
Specifically, the Fund will have a high
structural allocation to small- and mid-cap
stocks and to frontier markets companies
when compared with a typical global emerging
markets strategy.
13%
Global EM Thematic/Concentrated
Investment
Strategy Portfolio
Liquidity
The Fund will provide exposure to a broad range
of strategies aiming to target specific areas
that are rich for active investment and provide
diversification across a number of different
specialist managers.
High
Global EM Quality Value
India
Global EM
- SMID
China SMID
Low
Value
Global EM Large Cap
Regional Eastern Europe
Regional Pan Africa
Market Oriented
Global EM Small Cap
Frontier Large Cap
Growth
Frontier Small Cap
Source: Russell Investments. The size of the pie charts reflects approximate expected allocations to
different strategies/regions. These are indicative only and may change. For illustrative purposes only.
For more information:
Call:
+44 (0)20 7024 6000
Visit:
www.russell.com
IMPORTANT INFORMATION
This material is not intended for distribution to retail clients. This material does not constitute an offer or invitation to anyone in any
jurisdiction to invest in any Russell product or use any Russell services where such offer or invitation is not lawful, or in which the person
making such offer or invitation is not qualified to do so, nor has it been prepared in connection with any such offer or invitation.
Unless otherwise specified, Russell Investments is the source of all data. All information contained in this material is current at the time of
issue and, to the best of our knowledge, accurate. Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject
to change and, unless it relates to a specified investment, does not constitute the regulated activity of “advising on investments” for the
purposes of the Financial Services and Markets Act 2000.
Issued by Russell Investments Limited. Company No. 02086230. Registered in England and Wales with registered office at: Rex House,
10 Regent Street, London SW1Y 4PE. Telephone 020 7024 6000. Authorised and regulated by the Financial Services Authority,
25 The North Colonnade, Canary Wharf, London E14 5HS.
085a/March 2012