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Why this fund manager is blending diverse manager styles in a single ETF

By Jessica Penny
4 minute read

A senior portfolio manager has shared how a blended approach to ESG solutions can give managers an edge over their competitors.

In April, Russell Investments launched its first active multi-strategy ETF – the Russell Investments Sustainable Global Opportunities Complex ETF (ASX: RGOS) – providing Aussie investors with access to an actively managed portfolio of international shares, with an environmental, social and governance (ESG) focus.

With active ETFs tipped to explode in popularity, Russell Investments’ James Harwood believes a multi-strategy approach can give a fund an added edge over market competitors – particularly those investing through a sustainable lens.

Speaking on the Relative Return podcast, Harwood said the exclusionary nature of single-manager ESG solutions typically leaves a portfolio overweight in growth and quality factors and underweight in value.

Multi-strategy ETFs, however, enable investors to diversify their investments across multiple strategies using a single ETF, thereby lowering their investment risk through diversification.

“Rather than investors buying an active manager ETF that will probably have like 40 stocks or so in the portfolio and will often have equity factor style bets within that ETF that maybe the average investor doesn’t fully appreciate … What we’ve done with RGOS is we’ve brought together some of the most highly rated managers from our research team around the world,” Harwood said.

“We have got four managers in the portfolio – some of those are not available anywhere else to Australian investors as well.

“So, we’ve got a value style ESG manager that’s based in Scandinavia. And what we do at Russell, we take the models from these four managers and build it into a single portfolio … We have a lot of implementation capabilities at the firm, and we’re able to blend all of those styles from different managers that are highly rated into a single ETF. And I think that’s really attractive to a lot of investors.”

Harwood expounded that each manager has a different style of ESG investing, which helps diversify some of the common risk.

“I think what’s really important as well, transparency has been a big part of the growth of ETFs. You can download passive style holdings on a daily basis. Normally you can’t for active ETFs because managers want to protect their IP, their intellectual property. The beauty of RGOS is because we’re blending different managers, then the IP is effectively protected there already.

“It’s quite a unique ETF. The daily holdings are downloadable from our website. So there’s full transparency. And again, I think for investors that are investing with an ESG lens, they want to know what’s in the portfolio and they can see that on a daily basis with RGOS.”

Delving further into RGOS’ makeup, Harwood explained it is a balanced set of exposures to equity factors like value and growth.

“The clients that we’re dealing with don’t want to have these big drawdowns in performance. They want a more consistent, smoother return pattern. And by designing RGOS, that’s what we’ve taken into account. We’re trying to design that with a balanced set of exposures to all of those equity factors and also to give the potential for outperformance through active manager stock selection,” he said.

As for how it can be used in a portfolio, Harwood clarified that it’s designed to be a “core global equity holding for a sustainably minded investor”.

“With RGOS, you’re getting a much more balanced set of exposures to those equity factors and, as a result, you should expect a smoother return pattern over the investment cycle. It’s really all about designing a core and a smartly built global equity solution with a sustainable lens.”

To hear more from Harwood, click here.