Russell Investments has launched the Russell Investment Company Tax-Managed Real Assets Fund for long-term investors who seek to diversify their portfolios with real assets and reduce the impact of taxes on their investment returns.
Focusing on United States–based real estate, global infrastructure and global natural resources, the new fund aims to offer equity-like returns over a market cycle while mitigating downside risk relative to equities.
The fund also implements tax-optimized strategies such as tax-loss harvesting, turnover management and yield reduction with a goal to manage the inherently higher tax implications in the real assets sector.
“Our research indicates real assets can offer attractive returns while exhibiting low correlations to global equities and acting as an effective diversifier within a broader portfolio context,” said Patrick Nikodem, portfolio manager at Russell Investments.
Nikodem also believes real assets have the potential to offer some measure of downside protection in difficult environments while still capturing the majority of upside through a full market cycle. In addition, real assets may help to protect against the impact of rising inflation.
The new fund combines carefully selected third-party investment managers who specialize in the real assets sector.
At launch, the line-up features the following allocation: Deutsche Asset Management (28 percent) manages an assignment for United States real estate investment trusts (REITs) exposure; Colonial First State Global Asset Management (21 percent) has a global listed infrastructure assignment; Grantham, Mayo, Van Otterloo & Co. (21 percent) has a global natural resources assignment; and Russell Investment Management (30 percent) manages tax-optimized and positioning strategies.
“While real assets play an important role in a multi-asset portfolio, taxes in this sector can present a drag if not addressed in tax-smart ways,” said Frank Pape, senior director of the North America portfolio consulting group at Russell Investments. “Many miss the diversification real assets can provide.”
Russell Investments introduced its first tax-smart product in 1985 with a tax-exempt bond fund, which was followed by U.S. tax-managed equity funds in the 1990s and the firm’s first tax-managed model strategies in 2003.
With the launch of the Tax-Managed Real Assets Fund, Russell Investments also reallocated its tax-managed model strategies, as of June 11. The new fund accounts for 5 percent to 7 percent of the tax-managed model strategies, replacing the Global Real Estate Securities Fund and Global Infrastructure Fund. As a result, the overall allocation to tax-managed and tax-exempt funds increased from a range of 91 percent to 96 percent, to 95 percent to 100 percent.
As of March 31, Russell Investments manages $290 billion in assets and provides consulting services on $2.3 trillion in assets, as of December 2018.
