Chart of the month
Shailesh Kshatriya is the director of Canadian Strategies at Russell Investments Canada Limited. He contributes insights into the capital markets to help you understand the investment landscape and our investment management process.
A monthly feature with illustration on a specific investment issue, product, or index
Chart of the month archives:
May 2017 - Introducing Multi-Asset Equity Completion – Your “single-ticket” international equity solution
“Home-country bias” is a well-known and understood asset allocation concern. While the U.S. is an easily accessible option for geographic diversification, selecting assets outside of North America is not as straightforward. Many questions emerge. For instance, what’s the right mix between developed international markets versus emerging markets? Or, how much should be directed towards diversifying asset classes such as infrastructure or real estate?
April 2017 - Russell Investments Multi-Factor International Equity Pool – A sophisticated approach to factor investing
Russell Investments takes three crucial steps to construct its factor-based strategies. The first step, understanding the multiple factors, was discussed in the previous two Charts of the Month (COM). Specifically, we discussed how Russell Investments defines factors and their differentiating characteristics. Since not all factors are created equally, it is expected that individual factor performance will diverge to varying degrees depending on the market environment. This leads us to step two, thoughtful strategic construction of a multi-factor strategy, which will be the scope of the current COM.
Step three, how active management fits into Russell Investments’ approach toward a factor-based strategy, will be the point of emphasis in the next installment (stay tuned).
March 2017 - 1-Year Rolling Excess Return vs. Russell Global LC Index
The February Chart of the Month (COM) introduced how Russell Investments defines equity factors. Specifically, we highlighted how four primary factors: Value, Quality, Momentum and Low Volatility, have all displayed favorable return and risk characteristics compared to broad equity markets. We were, however, explicit in our concern: As factor-based passive offerings proliferate, investors who are not well-versed in the nuances of the various factors may face disappointment. We believe proper understanding of how factors have behaved in various environments is critical to building a factors-based strategy.
February 2017 - Annualized Excess Return and Volatility of selected equity factors relative to the broad market
Equity investing is ever evolving and becoming more sophisticated. A Google Trends search of ‘factor investing’ highlights how interest on the topic has risen over the last several years – and for good reason. ‘Factors’ are broad characteristics of individual securities that explain why they may move in sync, regardless of their asset class. Factor investing is designed to identify these characteristics or factors, and then actively adjust a portfolio’s exposure to them to help better manage risk and return.
January 2017 - Eurozone GDP growth and economic sentiment
Against the backdrop of record U.S. equity prices, a rebound in Canadian equities, low bond yields, and continued political uncertainty, our 2017 Global Market Outlook discussed where Russell Investments strategists see the best opportunities for the year ahead. In our first Chart of the Month (COM) for 2017, we highlight our global views and asset class preferences to start the year, particularly the case for investing outside North America.
November 2016 - The real advantage of infrastructure and real estate
This is the final installment of our three-part series on the income challenge and the strategic options investors have to meet that challenge. In the previous Chart of the Month (COM) we discussed global high income bonds and emerging markets debt, both non-traditional income strategies, as complements to an overall fixed income allocation. This month, we analyze two non-traditional asset classes: global listed infrastructure and global listed real estate, as strategic options for diversification, income potential, and overall total return opportunities.
October 2016 - Russell Investments Global High Income Bond Pool
In the previous Chart of the Month (COM) “The Quest for Yield”, we illustrated the challenge that conservative investors have generating a reasonable portfolio yield. This reflects the low yields offered by sovereign debt issuers — a consequence of central bankers exploiting the ‘zero lower bound’ as policy rates have been slashed to near zero, or in some instances, an explicit negative policy rate. In this second installment of a three-part discussion on income-oriented solutions, we highlight two subsets of the global fixed income universe.
September 2016 - The Quest for Yield
In the wake of the global financial crisis in 2008/2009, central banks globally launched a number of initiatives to boost growth. The success of these policies is debatable. What’s clear is that central banks globally have had an outsized influence on bond yields, which have fallen significantly to all-time lows. For investors requiring a steady income, the low yielding environment is a concern.
August 2016 - Holistic view of Russell Investments Active Performance vs. Traditional Passive Strategies
The media are quick to dismiss the value of active management. However, Russell Investments has found that certain traditional passive benchmarking strategies have difficulty engineering performance that is benchmark-like, as highlighted in the previous Chart of the Month (COM). Moreover, the performance discussion is almost always a "net of fee" (NOF) basis, we believe it should be measured in a more holistic manner: both net of fee and net of tax (NOT) as that is more reflective of an investor’s actual returns.
July 2016 - Passive performance not always "benchmark-like"
The volatility of financial markets, coupled with the prospect of lower returns, have many Canadian investors focusing on reducing the cost of their investments through the use of Exchange-Traded Funds (ETFs). Undoubtedly, the media have also contributed to the appeal, portraying ETF strategies as the unequivocal answer to today's market challenges. While ETF investing has its place, investment options should never solely be judged on cost and popular media trends. We believe investors should continue to educate themselves about the nuances of ETF investing. And as ETF strategies continue to proliferate well beyond their humble beginnings of traditional passive benchmarking, which we discuss this month, we believe investors require a fuller understanding of the ETF approach.
June 2016 - Multi-Asset Growth & Income Active Positioning
With investor demographics reaching critical inflection points, we believe the days of using traditional benchmarking - where performance is measured against a specific index - as a means to assess performance success are over. Demographic trends point towards the greatest transition of wealth from pre-retirement to post retirement. As investors approach retirement or start drawing income from their savings, for many their goals change from seeking returns to generating income to ensure they don't run out of money throughout their lifetime. Due to sequential risk concerns, investors generally can't afford a steep drawdown as they near or begin their retirement. When sequence of returns matters, investors need to be attuned to managing short-term as well as long-term risks.
With yields at all-time lows, bonds are unlikely to be a significant source of return in the near future, and with equity market valuations becoming stretched, we believe investors need to look to more dynamic multi-asset solutions.
May 2016 - Are U.S. equities overvalued?
Market inflection points are critical when considering asset allocation. The inflection points which currently come to mind relate to low bond yields and rising market valuations. The latter point takes on greater relevance when one considers that U.S. corporate profit margins are at multi-year highs and any indication of inflationary pressures will hurt corporate profitability in the world's largest economy. Although strategic asset allocation is critical to long-term investment success, over a shorter-term horizon, taking tactical positions may be warranted considering the implications of these inflection points.
April 2016 - Are U.S. equities overvalued?
As noted in our second quarter Global Market Outlook, we believe the business cycle support for equities is weakening and we therefore expect late-cycle market volatility. We believe that should not dissuade investors from financial markets, however it will require investors to be more vigilant in their investment approach.
March 2016 - Slow and steady "wins" the race
The strength of global equities since the bear market bottom in 2009 has been remarkable. As the market cycle matures, we expect returns to be more moderate. Aggravating the situation is that return prospects from traditional fixed income are challenged given current low yields. Therein lays the quandary for investors: achieving a reasonable rate of return given both equity and bond markets are at critical inflection points.
February 2016 - Our risk-responsive multi-asset approach
The divergence of economic growth and monetary policy globally are stressing financial markets. The result has been heightened volatility in equity prices, commodities and bond yields. In such times, asset allocation is an essential defense. We believe a multi-asset solution with dynamic capabilities and a focus on downside protection is critical.
January 2016 - Diversifying beyond Canada and U.S.
The importance of infrastructure investment cannot be understated. For example, it was a key theme in the recent federal elections, primarily due to the Liberal Party of Canada's plans to boost federal spending targeted towards infrastructure development. Globally, the need for infrastructure cannot be overlooked: pipelines to move crude from tar sands, dams in China, highways and freeways in India, bridges/ferry systems in Southeast Asia. In recent years, the Chart of the Month series has discussed some of the merits of investing in infrastructure. We continue to believe those merits hold. However, there are differences in how an investor can potentially approach the asset class: for example, a single equity security approach versus a multi-manager fund approach. This Chart of the Month differentiates these two approaches and highlights key considerations.