The Technical Details – How We Invest for Clients
In our last article, “How do We Invest for Clients?“, we discussed three key items that we take into account when reducing risk in our clients’ accounts. What are the technical details that accomplish the below?
We work with Russell Investments to address these key issues. Below is how Russell really knocks the socks off of their competition. Lets work our way back – starting with Money Managers:
Russell and Money Managers
Russell researches money managers. They go across the world and find just the right ones for each job. In 2015:
- 12,958 – initial pool
- 7,322 – researched and monitored
- 733 – deemed worthy to be hired
- 439 – assigned a role in managing money for Russell and their clients
Ok, so some young analyst crunched a few numbers and picked out the managers right? Wrong – numbers are definitely part of the strategy, but Russell researches these money managers to the core. This includes their executives, their culture, their values, and of course their strategy.
Russell also uses its huge resources to constantly monitor their current managers as well. What happens if there’s a manager who would be a better fit? What if a key professional left the firm? How about if they consistently under perform?
Russell’s unique business model allows them to replace a manager with another who has been pre-vetted. Think of it like a science experiment box with the glass window and gloves coming through the front – one manager takes out his hands, and another takes his place. It’s pre-planned, strategic, and seamless.
Russell and Asset Allocation
There are about 1,700 employees at Russell. Whole teams are dedicated to determining asset allocations. Not only are there stocks and bonds, but items such as commodities, real estate and infrastructure. International companies are also included – many of the world’s big names in business are not U.S. based. Companies like Nestle, BMW, HSBC and others are international powerhouses that can be leveraged by Russell’s managers.
As in our cake recipe example, different cakes suit different people. Some people like chocolate cake, others like yellow cake, and still others like cheese cake. Changing market conditions mean different ingredients need to be added or taken out to maximize the effectiveness and flavor of the allocation. For example, when Russell analyzed that a certain portion of their business had high P/E ratios, they decreased that allocation. It was then moved to another asset that was more suitable. These types of adjustments are done to benefit the long term outlook.
Russell’s goals are to generate returns while managing risk. Thoroughly researched and adjusted asset allocations add their part to succeeding on these goals.
Russell and Diversification
When it comes to diversification, no one does it quite like Russell. There are three distinct layers (and a fourth hidden one) that makeup the “not all your eggs in one basket”.
The first layer – Russell diversifies into are multiple asset classes. These include but are not limited to US stocks, US bonds, international stocks, international bonds, alternatives and other asset classes.
The second layer – Russell diversifies on money management styles. Whether it’s a growth style, value style, dynamic style or other – different styles of money management are as distinct as music. Rock, classical, country or reggae – each one is unique and just because one is popular it doesn’t mean that the others are not valuable as well. The same can be said about styles – each one is valuable at different times or market conditions.
The third layer – money managers. If music has different styles, different bands can play each style. Two rock bands play the same genre just in different flavors. However, you wouldn’t want your local rock band to start playing country music – their forte is the rock music and they would be best to stick to it.
Just as bands are distinct, so are money managers. Russell researches which ones should fill each style and hires more than one to diversify again.
Now the hidden (not so hidden) fourth layer – money managers pick multiple investments to make up their desired portfolio.
So What Does All This Mean For Me?
Like it was mentioned before, if you had one of the best investments in the world – don’t you think people would flock to it? Russell’s clients include Mercedes-Benz, Boeing, Toshiba, Coca-Cola, and many others. These big names work with Russell and so do we.
Check out a model portfolio here: Russell Model Portfolio.pdf
Curious on how you can take advantage of it? Our first meeting is complimentary and only informative – no sales pressure.
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