Russell Investments has today launched two income-based multi-manager funds in response to increasing investor demand for income-seeking strategies.

The Russell Australian Shares Enhanced Income Fund (RASEIF), taps into the strong forecasted dividend growth in Australian shares. The second fund, the Russell Australian Bond Income Fund (RABIF) allows investors to take advantage of the attractive yields on local bonds while being invested in defensive assets.

“Companies are starting to restore dividend payments as balance sheets strengthen, and bond yields are now at relatively high levels,” said Kathy Cave, Portfolio Manager for Russell Investments. “Launching these funds was a logical step given the current market environment and the increasing desire for income from investors.”

Dividends see turnaround

“We anticipate a much more supportive environment for corporate dividends going forward following the restoration of company balance sheets and the need for companies to return idle cash to shareholders.” said Ms Cave. “As the market potentially heads into a period of lower capital growth, a greater proportion of investors’ total equity returns will be driven by dividends.”

Russell believes it is important to not only focus on current yield but also sustainable and growing dividends that are supported by strong earnings.

RASEIF provides investors with a well diversified exposure to Australian listed companies with a history of – and strong prospects for – paying higher than average dividends. It has three investment strategies managed by Ankura Capital, Perennial Value, and the Russell Australia High Dividend Shares ETF (RDV). Ankura is a quantitative manager with a strong bias to small companies; Perennial Value is a traditional stock-picker with a focus on fundamental assessments of future earnings and dividends and RDV provides a passive exposure to the Russell Australia High Dividend Index. RASEIF will be benchmarked against Russell’s innovative new index, Russell Australia High Dividend Index, which comprises 50 large cap companies and is weighted towards those securities with stronger after-tax dividend characteristics.

All about bonds

According to Russell, the local bond market is now looking particularly attractive. Australian bond yields are higher than most in the developed world and issuers are generally of a high quality.

“The Fund’s dual aims of generating stable quarterly distributions, while outperforming its benchmark would be difficult within a single manager product,” said Ms Cave. RABIF therefore uses a multi-strategy approach to provide a regular income through a portfolio of AUD denominated bonds. It is made up of two managers; Aberdeen Asset Management and Western Asset Management. The managers explicitly take into account the impact of their trading and portfolio construction on the quarterly distributions of the Fund

“In the wake of the GFC many investors are looking for something different from their fixed income portfolios. For some it is no longer as simple as wanting to outperform a broad market index; they have additional objectives such as greater stability and regularity in distributions,” said Ms Cave.

“In developing these funds we have identified market trends and harnessed them to meet the needs of our clients,” Ms Cave concluded.

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