Russell Investments has dropped big bond brand PIMCO from its global fixed income fund in exchange for another US-headquartered firm, Voya Investment Management.
In a client note, Russell says while “we maintain a positive view on PIMCO, we believe that Voya’s investment strategy has the potential to provide the Funds with greater excess returns”.
PIMCO managed about 18 per cent – or just over $1 billion – of the Russell Global Bond Fund, which has about $2.8 billion in the Australian unit trust version and a further $3.2 billion in an Ireland-domiciled vehicle.
According to Russell, Voya offers “best-in-class securitised resources, which is unique amongst its global bond peer group”.
“The manager also provides additional, diversified sources of excess return; most notably mortgage derivatives, non-correlated interest rates and a quantitative foreign exchange model,” the note says.
Furthermore, Russell says Voya has a risk overlay across interest rates and currency along with an active asset allocation approach that can switch between “credit, emerging markets debt and securitized and government assets”.
However, Voya will manage just 12 per cent of the Russell fund as three incumbent managers – Blue Bay, Colchester and Insight – pick up an extra 2 per cent apiece, bringing their respective weightings to 20 per cent, 23 per cent and 20 per cent.
Schroders, the other remaining external manager in the bond fund line-up, retains its 10 per cent weight. The in-house Russell ‘positioning’ allocation also holds steady at 15 per cent of the fund but with a new ‘rates carry’ strategy added to the mix.
“The strategy aims to better-align international interest rate risk within the Funds with Russell Investments’ strategic beliefs,” the client note says. “The rates carry strategy will also serve as another potential source of return, while at the same time improving overall fund diversification given its historically low correlation not only to credit excess returns but also to currency factor returns and the excess returns of the Funds’ managers.”
In practice, the new Russell strategy will use bond futures in six countries – Australia, Canada, Germany, Japan, UK and the US – to build long or short positions to capture maturity and yield mismatches.
“It uses an objective, rules-based approach to gain a systematic bias toward higher-carry bond markets in major economies,” the note says.
Voya manages about US$213 billion including US$123 billion in fixed income. The investment business, headed by Christine Hurtsellers, is part of the wider Voya Financial listed firm that emerged out of the ING US group.
ING US formally adopted the Voya name in 2014, which it says was an abstract word derived from ‘voyage’ intended to signify “momentum and optimism”.
– David Chaplin, Investment News NZ