Russell Investments has launched an Australian equities fund that incorporates a tax overlay to maximise after-tax returns generated for its investors.
The Russell After-Tax Australian Shares Fund is a multi-manager product that uses an emulated structure incorporating a variety of tax strategies taken into account during the investment decision-making process.
In the emulated structure, Russell accepts investment ideas from a variety of selected managers, including Perennial Value Management via its relative value fund, Bernstein via its value fund and Karara Capital through its style-neutral fund. Russell does the fund investing.
The tax elements given consideration in the investment process are capital gains tax, turn over management, franking credits and off-market share buybacks.
Russell has also chosen to measure the fund’s performance against a post-tax benchmark, the FTSE ASFA Australia 200 Superannuation Index.
“It’s really about generating a good total return in the Aussie equities space; it’s not just about minimising the tax situation,” Russell Investments portfolio manager for Australia Kathy Cave said.
“We expect to add alpha pre-tax and we also expect the after-tax return to be much higher than a typical manager where there is no attention being paid to different tax strategies.”
Fund performance will be provided for investors on both a pre-tax and after-tax basis.
The target audience for the new Russell offering is superannuation investors due to the relatively simplistic nature of the tax structures in the retirement savings space.
Russell is looking to champion after-tax investing for several reasons, including the need to give investors what they want and the need to move with regulatory requirements.
“Most investors in the market care about returns on an after-tax basis and yet the industry is still focused and fixated on pre-tax returns. It’s a misalignment Russell didn’t want to live with,” Russell Investments director of after-tax investment strategies Raewyn Williams said.
