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FUND BROCHURE Emerging Markets Extended Opportunities Fund Exploiting increasing diversity in investment opportunities a ni a om Zimbabwe R Russia a n Chi Baltic Thailand Kenya For Professional Investors only ia d In Mo roc cow 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