Russell Investments has expanded its tax-managed fund line-up with the introduction of the Russell Tax-Managed International Equity Fund and the Russell Tax Exempt High Yield Bond Fund.
The two new funds will be incorporated into Russell Investments’ Tax-Managed Model Strategies in June as part of an overall strategic asset reallocation of the five model portfolios that will result in each model portfolio’s allocation to tax-aware funds exceeding 90 per cent.
“Tax management is an important topic for investors and, for more than three decades Russell Investments has provided tax-aware investment solutions that help advisors and their clients minimise their tax exposure and maximise their investment dollars,” says Phill Rogerson, managing director, consulting and product, for Russell Investments’ US advisor-sold business. “With investors and their advisors more focused than ever on outcomes such as financial security in retirement, every dollar saved in taxes is one that can be put toward an investor’s goals. It’s precisely for this reason that we expanded the suite of investment solutions that can help investors grow their after-tax wealth more efficiently.”
For advisors looking to help clients grow after-tax wealth, Russell Investments offers several ways to access its tax-managed capabilities, including:
• Total portfolio solutions (Russell Tax-Managed Model Strategies)
• Individual funds focused on US large cap, mid and small cap, and tax exempt bonds, as well as the two new funds focused on international equities and tax-exempt high yield
The new Russell Tax-Managed International Equity Fund is currently one of the only tax-managed, multi-manager international equity mutual funds available to investors. It seeks to deliver long-term capital growth on an after-tax basis, and invests principally in depositary receipts and equity securities issued by companies economically tied to non-US countries in both developed and emerging markets. Jon Eggins, senior portfolio manager at Russell Investments, manages the new fund, which employs a range of tax-management strategies, including managing holding periods and yield, tax-lot swapping, tax-loss harvesting, minimising wash sales and more, as appropriate.
“Tax-managed investing today is more than just municipal bonds and US stocks. It’s now available globally,” said Eggins. “Developed and emerging markets are accessible in one fund, which provides uncommon tax-managed access to emerging markets. Typically it is more tax-efficient to combine sub-asset classes that are not perfectly correlated, as it increases opportunities for tax-loss harvesting in one to offset gains in another.”
The Russell Tax Exempt High Yield Bond Fund is a multi-manager fund providing access to tax-exempt high yield municipal debt securities. Kevin Lo serves as portfolio manager for the fund, which recognises that high yield bonds have historically produced tax-equivalent returns similar to equities at half of the volatility, albeit with some increased risk, and is designed to create an opportunity for higher tax-exempt income by investing 30-60 per cent of its assets in municipal bonds that are ‘below investment grade’. The primary purpose of the fund is to provide a high level of current income that is tax-exempt, but it will also focus on providing total return.
Russell Tax-Managed Model Strategies offer broad diversification, access to some of the world’s leading managers and strategies, and dynamic portfolio management. The strategic asset reallocation of the portfolios, effective June 1, will increase the tax-efficiency design of the models via allocations of between 91 per cent and 96 per cent to tax-aware funds, depending on the model strategy.
In part, this will be accomplished via the addition of the two new funds, the Russell Tax-Managed International Equity Fund and Russell Tax Exempt High Yield Bond Fund:
• The Russell Tax-Managed International Equity Fund will replace the Russell International Developed Markets Fund and the Russell Emerging Markets Fund.
• The Russell Tax Exempt High Yield Bond Fund will replace the Russell Global Opportunistic Credit Fund.
The Russell Global Infrastructure Fund is also being added to the Russell Tax-Managed Model Strategies to potentially enhance return and contribute to portfolio diversification.
“The reallocated Russell Tax-Managed Model Strategies represent our best thinking on tax-aware total portfolio solutions and are rooted in Russell Investments’ globally diversified, multi-asset investment approach,” says Rogerson. “This asset allocation is optimised with our enhanced portfolio implementation strategy in the tax-managed equity funds, allowing for trading efficiencies, as well as enhanced tax-management capabilities across the portfolio, including addressing the concerns of capital gains associated with trading single manager funds. Ultimately, we aim to deliver the end investor with a disciplined approach to managing taxes that can help them achieve their investment outcomes.”