Overview Russell Year Founded - 1936 Core Business – Consulting, Institutional Sales, USD Core business is capital markets and manager research
Focus on global presence to both serve clients and for manager research
Review some of Russell’s representative client list (noting that clients listed may contract for a variety of services from Russell Investment Group).
Focus on resources dedicated to manager research, portfolio management, capital markets
Regarding manager research: Highlight the difference between qualitative and quantitative aspects of a money management organization. Focus on 4 P’s
Number of strategies monitored, researched, buy rating and utilized. Selective process
Picking today’s hot managers isn’t the solution. So how do we address this challenge? Mark Twain once said, “History doesn’t repeat itself, but it rhymes.” We have to pay attention to history, but it isn’t going to be enough of a guide to tell us exactly what to do. The lessons of history have actually served to show us more about what not to do, such as market-timing or hiring last year’s hot manager. This chart says if we take a universe–a collection of a lot of different managers’ returns with a six-year performance history–and look at the results over that time period, we can see something important. Out of the 123 major banks, insurance companies, and investment advisors, 31 of the total top performing managers had top quartile performance in 2000. This is not risk adjusted; it didn’t matter how they did it. Just that their returns were in the top 25%. That number dropped to 22 in 2001 and seven by 2003. What is significant here is that only two remained at the end of the six years. Our goal is to win by not losing. We want to use managers who consistently do an above-average job, and we want to take steps to avoid the managers who we believe are likely to be poor performers.
This nine-square grid represents Morningstar’s chosen money manager classification system. Each square on the grid represents a particular investment style and all managers using this style are included within that square. This system, while beneficial at the macro level, can be confusing to some investors at the micro level. Many investors believe they can achieve diversification by simply choosing any manager within each appropriate square. However, Morningstar’s system makes no assumptions about performance or talent. To illustrate the performance differences for managers classified within the same investment style, Russell has randomly selected four different styles on the outside corners of the Morningstar style boxes. This is illustrated by the highlights on those boxes.
Using zero return as a baseline, this graph illustrates the wide return variability for managers within each of the highlighted squares, which are defined as fairly homogeneous. As is illustrated, for the highlighted investment styles—large-cap value, large-cap growth, small-cap value and small-cap growth—single-manager returns for 2005 varied widely. This performance spread illustrates the additional volatility, identified as sampling risk, that investors might inadvertently assume, if they infer more than is intended by Morningstar’s style boxes. Russell’s multi-manager approach blends managers to help reduce this volatility.
This slide is used as an example for combining different types of managers to build a mid-large cap US equity portfolio
Our goal encompasses diversification for risk management and consistent, above-average performance. We propose to help you manage market risk and meet your client’s financial needs through portfolio construction and maximum diversification. We employ a MULTI-ASSET, MULTI-STYLE, MULTI-MANAGER approach. Multiple Asset Classes – In order to reduce risk and increase expected return over the long term Multiple Styles – Because no single style of investing consistently dominates over the long-term Multiple Managers – To control the risk of relying too much on any single investment firm and preserve the return potential Russell offers three distinct advantages in the investment arena over other multi manager firms: 1)Other multi manager firms research managers solely by using quantitative screens. That means they put all their data into a computer and the best performing managers get assignments. Russell uses quantitative and qualitative methods to select managers., interviewing more than 2,700 managers every year. 2)Most other multi manager firms have a proprietary interest in managers they recommend. We don’t. This allows usl to maintain our objectivity. Face it, will these other firms fire themselves? Russell's clients come to us for our ability to deliver objective opinions, and to be able to hire and fire managers with impunity. 3) Most other multi manager firms do not use market-oriented managers. Russell's long-term out performance is helped due to its use of this style of manager, which falls through the cracks of traditional growth/value analyses. Market oriented managers are geared toward beating the overall market without regard to style. These managers exhibit no strong consistent bias to growth or value. These managers are opportunistic in seeking those securities that they perceive to have the best growth/value characteristics
Russell Core Philosophy
Russell’s Core Philosophy Personalized – Researched – Proven Date Presenter Name Presenter Title
Disclosure <ul><li>Fund objectives, risks, charges and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling (800) 787-7354 or visiting www.Russell.com. Please read the prospectus carefully before investing. </li></ul>
Disclosure <ul><li>Small capitalization (small cap) investments involve stocks of companies with smaller levels of market capitalization (generally less than $2 billion) than larger company stocks (large cap). Small cap investments are subject to considerable price fluctuations and are more volatile than large company stocks. Investors should consider the additional risks involved in small cap investments </li></ul><ul><li>Non-US markets entail different risks than those typically associated with US markets, including currency fluctuations, political and economic instability, accounting changes, and foreign taxation. Securities may be less liquid and more volatile. </li></ul><ul><li>Specific sector investing such as real estate can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes and tax laws and interest rates all present potential risks to real estate investments. </li></ul><ul><li>Bond investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. Greater risk is inherent in portfolios that invest primarily in high yield bonds. They are subject to additional risks, such as limited liquidity and increased volatility. </li></ul><ul><li>Client List and Selection Criteria: US and non-US clients on this representative list were selected from Russell Investment Group’s complete client roster from those who have given permission to publish their names (as of 2/06). US publicly-held companies listed are Russell clients that appear on the 2006 Fortune 100 list. The non-public company client and endowment/foundation client are each those with the highest total assets. Non-US clients listed represent those with the highest total assets in each of the following regions: Austral-Asia; Japan; Europe and Canada. Performance-based data was not used in selecting listed clients. </li></ul><ul><li>The identification of the clients listed does not constitute an endorsement or recommendation of Russell's products or services by such client. </li></ul>
Global Alliances to: Improve Financial Security for People <ul><li>Russell delivers its investment programs by joining forces with some of the leading financial services organizations throughout the world. These alliances allow Russell to provide investment expertise within a program tailored for investors in each region. </li></ul>
A Pioneer of Multi-Manager Investing Tacoma 1936 Toronto 1984 New York 1969 London 1979 Paris 1994 Singapore 1999 Tokyo 1986 Auckland 1991 Sydney 1986 <ul><li>Advisor to major institutions around the world </li></ul><ul><li>Leading global provider of multi-manager portfolios* </li></ul><ul><li>2,000 associates worldwide </li></ul>*Russell Investment Group holds the largest market share of the global manager of managers market which includes “collective investment funds or institutional separate accounts with assets managed as segregated accounts by multiple underlying managers.” The Cerulli Report™, Cerulli Quantitative Update: Global Multimanager Products 2005.
Advising Clients on more than US $2.4 Trillion* in assets worldwide Build Investment Strategies Implement Disciplined Approach Help Meet Financial Goals and Obligations Representative Client List Alcoa AT&T Inc. BASF BHP Billiton Bill and Melinda Gates Foundation Boeing Caterpillar Coca-Cola General Motors IBM Molson, Inc. State Teachers Retirement System of Ohio Toyota Motor Pension Fund UnitedHealth Group *Global assets under advisement as of 9/30/05. Representative client list as of 2/2006. Clients may contract for a variety of services from Russell Investment Group. For more information on the selection criteria, please refer to the disclosure slide.
Russell’s Global Team of Investment Experts Russell Investment Process Current as of 12/31/05 Russell Puts More Than 490 Investment Professionals From Around the World to Work for You 101 Manager Selection 127 Asset Allocation & Capital Markets Research 77 Review & Control 94 Trading & Implementation 95 Portfolio Strategy
Russell’s Manager Selection Process <ul><li>Qualitative </li></ul><ul><li>Personnel / administration </li></ul><ul><li>Investment philosophy </li></ul><ul><li>Decision making procedures </li></ul><ul><li>Economic and securities research </li></ul><ul><li>Quantitative </li></ul><ul><li>Performance against peer groups </li></ul><ul><li>Performance against benchmarks </li></ul><ul><li>Transactions </li></ul><ul><li>Portfolio characteristics </li></ul>PEOPLE PROCESS PORTFOLIO PERFORMANCE
Russell’s Research-Based Investment Process Manager Products Used in Russell Funds Managers With A Primary ‘Hire’ Rating Manager Products Continually Monitored and Researched Total Manager Products Monitored By Russell Data as of 12/31/05 8,600 4,500 680 180
Why picking today’s hot manager isn’t the solution. Source: Russell Investment Group Equity Accounts Universe of 123 major banks, insurance companies and investment advisors with six years of return history ending December, 2005. Few Managers Stay in the Top Quartile Consecutively Six Years 2000-2005 Of the top 31 performing managers in 2000*, only two of them stayed on top over time. 2000 2001 2002 2003 2004 2005 31 22 16 7 4 2
Inside Morningstar’s Style Boxes: What are the Performance Realities? Morningstar Style Boxes All Categories Large Cap Small Cap Value Growth Large Value Large Growth Small Value Small Growth RANDOMLY SELECTED MORNINGSTAR CATEGORIES Source: Morningstar Principia The Morningstar Style Box™ reveals a fund’s investment strategy. For equity funds the vertical axis shows the market capitalization of the stocks owned and the horizontal axis shows investment style (value, blend or growth).
2005 Performance Ranges for Money Managers within each Selected Morningstar Style Box 46.1% -11.94% 53.96% -9.4% 19.49% -8.09% 22.55% -68.18% 63.36% 27.58% 90.73% PERFORMANCE SPREAD 0% return Large Value Large Growth Small Value Small Growth MORNINGSTAR CATEGORY 58.04% Source: Morningstar Principia. Data as of 12/31/2005. Performance quoted represents past performance and does not guarantee future results.
RIC Equity I / Diversified Equity Funds Value Growth Large Medium Size Market-Oriented Style Suffolk Russell 1000® Equity I / Diversified Equity Fund Turner Ark MFS Marsico Montag Alliance - Bernstein Russell 1000® Value Russell 1000® Growth ICAP Schneider Money managers listed are current as of 07/26/2006. Subject to the Fund's Board approval, Russell has the right to engage or terminate a money manager at any time and without a shareholder vote, based on an exemptive order from the Securities and Exchange Commission. If applicable, please refer to the most recent prospectus which will contain the latest information. The investment strategies are the goals of the individual money managers; there is no assurance that the exact objective will always be met. Select Holdings
The Goal of Our Investment Process Russell’s goal is to deliver above-average returns and above-average consistency with lower volatility. The Heart of Russell’s difference: institutional-quality money managers that are often not available to retail mutual fund investors. UP TO 6 ASSET CLASSES 12 POTENTIAL INVESTMENT STYLES UP TO 48 INDEPENDENT MONEY MANAGERS *Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets.
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