Russell Investments 

Russell by the Numbers

• Founded in 1936
• Creator of the Russell Global Indexes, including the Russell 2000®
• $136.1 billion in assets under management†
• approximately $786 billion* in assets under advisement
• more than 2,800 institutional clients and millions of individual shareholders in 46 countries
• Rated #1 in Money Manager Research**
  •5,200 investment products scrutinized annually
• Fewer than 3% of researched money managers make it into our funds

Russell's investment philosophy is rooted in the belief that financial markets reward knowledgeable, disciplined investors. Based on a philosophy that over a long period of time active money managers can add value, Russell selects teams of money managers that strive to meet clients' investment goals. Russell aims to manage risk and provide consistent, above average returns both collectively and over time.

Multi Asset, Multi Style, Multi Manager – A Solid Diversification Strategy

All investments carry some level of risk. However, we believe risk can be managed at multiple levels. Russell's time-tested investment approach rests on the following foundations:

• Diversifying among asset classes is one of the most prudent approaches to managing risk.
• Investment styles move in and out of favor with the market.
• Even the best investment managers do not stay on top for extended periods of time.

The Russell Investment Approach

Russell's sophisticated strategy is designed to help you reduce risk and build long-term wealth. To develop long-term financial security, you and your financial professional can diversify portfolios at these three levels, based on your investment goals and risk tolerance:

• Multi Asset— Each of the major fields of investment can be included in a portfolio, in proportion to your objectives.
   
• Multi Style— When you invest in one Russell fund, your investment has representative managers from each style category. No matter which style is in favor at a time, this blending of styles can help reduce risk and work toward more consistent returns.
   
• Multi Manager— Within manager styles, Russell mutual funds and managed accounts use a manager-of-managers approach, selecting and monitoring some of the most talented money managers in the world.

No investment strategy can guarantee a profit or protect against a loss.

Multi Asset

The First Level of Diversification in the Russell Investment Approach

Different asset classes have different risk and return characteristics. Your portfolio should combine them in a way that meets your objectives and your need for stability. Finding the combination that is right for you will help give you the comfort to adopt a long-term investment discipline.
 
What Are Asset Classes?
Some examples of different asset classes include:

• U.S. stocks   
• Emerging market stocks    
• International stocks    
• Bonds    
• Treasury bills (cash)   
•  Real estate    

Multi Style

What Are Styles?
Professional investment managers use unique methodologies to decide which stocks to buy. These methods can generally be categorized into one of several broad investment styles, such as growth, value, market-oriented, and small capitalization.

Growth
These managers are primarily interested in a company's earnings. They focus on investing in companies they expect to exhibit profitability and shareholder earnings greater than their industry peers.

Value
Value managers are most interested in getting a company's stock for a good price. They may purchase stocks of companies that are currently out of favor with the market, believing the stock is a good value for the price.

Market-Oriented
These managers seek to develop well-diversified portfolios with average growth and valuation characteristics similar to the broad market. Many managers seek to add value by emphasizing economic sectors they believe are undervalued.

Small Capitalization
These managers focus on smaller companies. Some of these companies are young and growing rapidly, while others are simply smaller businesses with long histories. These companies are characterized by low dividend yields and above-average volatility.

Styles continually move in and out of favor with the market.
 
The Importance of Style

Russell uses comprehensive research, complex algorithms, and sophisticated technology to regularly evaluate fund managers for style. Confirming style is important because it ensures that your investment remains appropriately diversified over time.

When you invest in one Russell fund, your investment is diversified within each asset class into several complementary styles.

No matter which style is in favor at a time, Russell's blending of investment manager styles and complex style evaluation can help to manage risk and work toward more consistent returns, making you feel more comfortable adopting, and sticking to, a long-term investment strategy.

Multi Manager 

The Third Level of Russell Investment Approach Diversification
For more than three decades, Russell has devoted considerable resources to identifying, hiring, and managing some of the best money managers in the world.

Russell uses a manager-of-managers approach within investment products. No matter which asset or style is in favor at any given time, this complementary blending of managers can reduce your risk and help provide more consistent returns through all kinds of market environments.

 
Screening Money Managers
Each year, through an integrated worldwide network of analysts, Russell evaluates more than 1,100 investment managers and more than 6,600 investment products globally.

Russell's analysts hold more than 2,000 research meetings annually—the majority of which are face-to-face—to study each manager's quantitative and qualitative characteristics.

Russell research and monitoring identifies managers worth further scrutiny. Additional research leads to decisions about which managers will ultimately be selected for Russell products globally.

 
Using various proprietary factors, Russell determines which managers are currently adding value in their style through superior processes and exceptionally talented individuals.

These main factors include:

• Stability—Which manager teams and organizations will have the lowest turnover.  
• Superior Environments—Which organizations are most likely to produce above-average returns.  
• Performance Indicators—Which style and investment techniques and organizational traits best support potentially superior manager performance.  

Russell evaluates these factors, covering regional and multicurrency products in all major equity and fixed-income markets:

• Equities (single country, emerging markets, and global/international)    
• Fixed income (single currency, multicurrency, and convertibles)    
• Global and domestic asset allocation    
• Currency strategies  

Selecting the Best
Because research confirms that past performance is not predictive of future performance, Russell's approach gives the most weight to the value of the manager's investment process and the strength of the manager's organization.

The following illustration compares Russell's selection criteria to the competition.

Picking Today's Hot Manager Isn't the Solution
To be on top one year, a manager has to take a lot of risk—risk that is just as likely to land them on the bottom in the following years. Russell's goal is to select managers who have historically performed better than average on a consistent basis.

If you simply pick today's top manager for your investment, you may not be prepared for the long run. For example, in 1998, of our total of 109 U.S. equity managers, 27 managers composed the top quartile, or the top 25% of U.S. equity managers. Out of those 27, 18 remained in the top quartile the next year. Exodus from the top quartile was swift and no manager was still there in 2000, 2001, 2002 or 2003.
 
Few Managers Stay in the Top Quartile Consecutively

2002 - 2006

 
Source: Russell Investment Group's Equity Accounts Universe of 109 major banks, insurance companies, and investment advisors with five years of return history ending Dec. 2006.
 
Testing Russell's Theories
Russell's research analysts use an unmatched, proprietary database of qualitative and quantitative characteristics to identify managers most likely to outperform their benchmark indexes and their peers.

The following table includes some of the characteristics that Russell analyzes.

Continuously Monitoring Managers
Many changes can occur in funds, and investors aren't always aware of them. A manager may leave a firm, or a manager might alter their investment style unexpectedly. For these reasons, Russell continuously monitors its managers to make sure they stick to their assignment, replacing them if necessary. This way, your investment stays on track with your goal.

Russell's continuous research approach also helps keep the money manager turnover rate in the low 7% to 10% range, which keeps costs down. Other approaches are susceptible to much greater turnover rates because they are driven by performance, which is inherently volatile.