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Balanced Funds

What's in a name?

Russell manages three multi-asset portfolios with approximately 70% allocations to growth assets and 30% allocations to defensive assets – Balanced Blended, Balanced, and Balanced Opportunities. What makes them different?

Let's start with the strategy

The portfolios' investment strategies are different to each other in three key ways.

• The allocation to alternatives assets. These include non-traditional asset sectors (such as high yield debt, emerging market debt, commodities and infrastructure) and strategies (such as long short equities).
• The degree of active management, or higher return seeking strategies, applied to each asset class.
• The allocation to unlisted assets, including Australian unlisted property.

Russell believes that these three strategies will reward investors in the long term – in terms of enhanced, expected net-of-fee returns, and/or lower expected volatility.

However, these three investment strategies carry risks in the short-medium term, and so are best suited to investors with a (relatively) higher risk/return profile.

Drilling down on the funds

The Balanced portfolio is for investors who seek relatively 'lower' allocations to alternative assets, less active sector management, and no exposure to unlisted assets.

For example, alternatives are currently limited to global infrastructure and this is managed – along with a number of other growth assets in the portfolio – on an index basis not an active basis.

The Balanced Blended portfolio is for investors who seek relatively 'moderate' allocations to alternative assets, active sector management, and exposure to unlisted assets.

In contrast to the Balanced portfolio, this portfolio invests in unlisted assets and a broader range of alternatives (e.g. commodities). Asset sectors (e.g. international shares) are more actively managed.

The Balanced Opportunities portfolio is Russell's fully actively managed portfolio for investors who seek relatively 'higher' allocations to alternative assets, active sector management, and exposure to unlisted assets.

In contrast to the Balanced Blended portfolio, this portfolio has higher allocations to unlisted and/or alternative assets. Asset sectors are managed more actively when compared with the Balanced portfolio. For example, in the Australian shares sector this includes the use of the Russell Australian Opportunities Fund. In the international shares sector, this includes the use of the Russell Emerging Markets Fund.

The table below shows the differences in strategic asset allocation and asset allocation ranges between the three portfolios.

	Balanced Blended		Balanced Portfolio		Balanced Opportunities Portfolio
Asset class	Strategic Allocation %	Allocation ranges %	Strategic Allocation %	Allocation ranges %	Strategic Allocation %	Allocation ranges %
Australian shares	32.0	27-37	31.0	21-41	29.5	17-37
International Shares	31.0	26-36	27.5	19-39	27.5	16-36
Property	7.0	2-12	5.5	0-17	6.0	0-17
Fixed Interest	25.0	20-30	25.0	18-38	25.0	20-40
Cash	5.0	0-10	3.0	0-12	3.0	0-10
Alternatives	0.0	0-5	8.0	0-13	9.0	0-20

Making sense of it all

Given the greater exposure to the more expensive active strategies, and alternative and unlisted assets, the fees charged in the Balanced Opportunities Portfolio are slightly higher – both in the fixed investment management costs (0.75% versus 0.65% (Balanced) and 0.55% (Blended) p.a.), as well as performance fees paid to some of the underlying managers used in the portfolios (0.06% versus 0.0% for the 12 months ending 31 March 2011).