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Monday, December 09, 2013

Russell Sharpens its Tool Chest

Reported by Tommy Fernandez

Advisors are hearing this request more and more often: Is there any way I can squeeze a little more return for my risk appetite? Is there any way I can get a smoother ride for my investments?

Investors are asking for more miracles with their Sharpe ratios, and as a result Russell Investments [profile] is scrambling to uncork a better smart-beta genie.

These genies may be found in smart-beta indices that use factors, such as fundamental weighting, equal weighting and low volatility methodologies.

Russell is working with advisors and investment managers to get as many ideas as possible on such things as better rebalancing rules, as well as better strategies for evading down capture.

"We are looking for new ideas all over. The best ideas come from talking to your clients frequently," Russell's Ken O'Keefe recently told MFWire.

O'Keefe is a Russell managing director in charge of strategy and product management for indices that serve as the basis for investable products such as ETFs.

He says equal weighting techniques help force investors to follow that most basic of rules, buying low and selling high, which often seems impossible in practice. Equal weighting also helps investors diversify their portfolios.

Meanwhile, Russell is working with risk specialist Axioma to expand the lineup of low volatility indices. O'Keefe says that low vol indices are enjoying a marketing advantage now because many investors are noting the "low vol anomaly," in which many low vol portfolios outperform over a ten year period.

"We like to look upon our low vol indices as Smart Beta 2.0," he says. 

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