The arrangement will outsource Qantas Super’s FX trades for active global equities and alternatives to RIS’ global trading desk for efficient execution and settlement. RIS will manage operational risk and provide Qantas Super with comprehensive performance reporting tools.

Qantas Super’s Chief Investment Officer, Andrew Spence, said the agreement demonstrates Qantas Super’s commitment to enhancing member returns while adhering to strict FX governance processes.

“Implementation efficiency is a key focus for Qantas Super as we strive to deliver the best risk-adjusted returns to our members. We have undertaken extensive due diligence to quantify the costs associated with FX trade execution and to find a solution that delivers enhanced transparency and cost efficiency. Qantas Super believes RIS will be an ideal implementation provider given their depth of resources, expertise in agency FX and commitment to transparency around FX trading costs,” Mr. Spence said.

Ian Battye, Managing Director of Russell Implementation Services, said the costs of FX trading had been under the radar for too long. Russell’s analysis* of 40,000 FX trades shows the cost of FX transactions can be up to nine times higher than either investors or managers expect.

“Our research shows that many funds are unaware FX transactions can be so costly, and investors can’t assume FX trades are being executed efficiently by their investment manager. In Australia, we see Qantas Super as a leader in this space for first monitoring and then taking definitive action for a long-term solution to stop performance drag on members’ returns due to FX leakage. I’m glad Qantas Super is joining our other global agency FX clients in taking action to achieve best execution and enhanced transparency in FX markets,” Mr. Battye said.

Russell’s agency FX model has been operating since 2003 and is designed to cut FX transaction costs through a process that is a cost effective alternative to traditional FX execution services. The program has surpassed A$68 million in total savings on behalf of the Russell global equities funds as well as other institutional clients.

“The savings we have made across Russell Investments’ funds underscore that we practice what we preach. Implementing an agency FX program provides investors with a quick, clear and easy solution to the challenges they’re now identifying in the FX marketplace. Not only can this save them time and deliver lower costs, but it can also demonstrate their commitment to industry best practice,” Mr. Battye concluded.

Click to request a copy of the research “Are your FX fees too high?” .

*Russell analysed 40,000 FX trades executed by investment managers with custodians and other foreign exchange counterparties between January 2008 and December 2009 on institutional assets totaling approximately A$23 billion.

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Australian Institutional Specialist Hired to Head Sydney Office

The Sydney office will be managed by Australian Ian Webber, Director, Institutional Investments (Australia & New Zealand), who joined Artio Global in June of 2011. Mr. Webber has extensive experience providing investment solutions to institutions, most recently as Co-Head of Australia/Head of Sales and Marketing for AXA Rosenberg Investment Management. He also served as Director, Institutional Business for Salomon Smith Barney/Citigroup Asset Management. He holds a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia and a Bachelor of Economics from the University of Newcastle.
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Tony Williams, Chief Operating Officer of Artio Global said, “We believe that we offer a well-differentiated and compelling perspective on global investing that will resonate with Australian investors. Ian’s background and experience working with local institutions provides a strong base for us to make inroads into this important market.”
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Artio has offices in New York, Los Angeles, Toronto and London. The Sydney office will be part of the firm’s strategy to increase its distribution into Asia. “We have been looking to expand our global network and Australia, with its appetite for a variety of strategies and large pool of superannuation capital is a logical early opportunity,” concluded Mr. Pell.

For more information, please visit www.artioglobal.com.

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New Russell research released today shows

• 30% of institutions will consider using ETFs in future in a significant way
• Education and innovation will be key to evolution of institutional ETF market

Global financial services firm Russell Investments is urging Australian institutional investors to properly understand how they can use ETFs in portfolio management, and is rallying the ETF industry to focus on meeting the growing needs of the institutional market.  This follows Russell’s launch of a major new research report today: Digging Deeper: Institutional ETF investing in Australia which looks at how Australian institutions are using ETFs and plan to use them in the future.

While retail use of ETFs has boomed in Australia, institutional usage has lagged, which is exactly the opposite of how ETF markets have developed in Europe and the US. A recent Greenwich report showed institutional ETF usage in the US has increased dramatically over the past year and will continue to grow. To date there has been limited evidence around institutions’ attitudes to ETFs in Australia so Russell engaged Deloitte Actuaries & Consultants to undertake in-depth interviews with 20 institutions that directly manage or advise on over 40% of Australian funds under management.  The respondents ranged from large investment managers, superannuation funds and insurance companies to smaller investment advisers and endowments & foundations.

“While some institutions initially perceived ETFs as a retail solution; the research found that the majority of institutions use ETFs in a small way with 30% considering using ETFs in a significant way,” saidAmanda Skelly, director ETFs, Russell Investments.

“This is a positive sign for the industry although there is still a lot more we co do to help drive growth through product inovation and education.

Getting under the skin of institutional ETF usage

While large institutions often view futures, direct mandates or low cost managed funds as superior to ETFs for purposes such as dynamic asset allocation, cash equitisation and transition management, many were able to pinpoint specific instances where they had used or considered using ETFs over these investment vehicles.
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“If you’re looking to hold a future for longer than three months,roll costs, loss of franking credits and basis risk may mean ETFs are more cost and tax effective. Likewise if you’re looking for more precise sector exposure or exposure to hard to access markets, ETFs might also be a more effective tool,” Skelly said.

Large institutions also indentified other uses for ETFs; as a way to implement a temporary strategic or tactical allocation for smaller pools of capital or sub portfolios; as a tool to manage temporary investment positions; and as an option for investment platforms offered to retail investors.
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Many larger institutions had also considered more innovative uses of ETFs in non-core parts of their business or for portfolios constructed for specific clients.
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“As institutions continue to evolve to address specific customer needs, be it managing pension assets differently, expanding the types of exposures they are seeking to access or taking a more macro approach to investing, ETFs can play a role. They should be considered alongside all other types of investment vehicles,” Ms Skelly said.
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For smaller institutions it is clear ETFs could play a role as a long or short term investment solution and often have both tax and cost benefits.  For them, comfort with existing investment structures and processes and limited knowledge of ETFs have been the main barriers to acceptance.
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Overcoming barriers and future innovation
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The cost of ETFs verses other instruments was a reoccurring concern throughout the research.  Yet many respondents highlighted there are certain times when ETFs can be a cost effective alternative and should be assessed on a case by case basis.
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For Australian listed ETFs, lack of secondary market liquidity and market depth were concerns, with many institutions turning to overseas exchanges for ETF usage.
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“While ETFs are gathering momentum, the local market is still in its infancy. It is clear we need to continually educate the market on ETFs to ensure investment decision makers are properly evaluating the role they could play in their businesses,” Ms Skelly said.
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Looking ahead, while the research shows it’s still early days, many Australian institutions are realising ETFs can enhance the portfolio management process and will have a role in the future.
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“There is a growing institutional acceptance of ETFs but how fast the market develops here will hinge on education and innovation,” Ms Skelly concluded.

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• The Vanguard Australian Shares High Yield ETF (ASX code: VHY):  Seeks to match the return (income and capital appreciation) of the FTSE ASFA Australia High Dividend Yield Index (before fund fees and expenses). The FTSE ASFA Australia High Dividend Yield Index generally comprises approximately 60 securities listed on the ASX with higher forecast dividend yield relative to other companies listed on the ASX. VHY has a fee of 0.25 per cent p.a.

• The Vanguard MSCI Australian Large Companies Index ETF (ASX code: VLC):  Seeks to match the MSCI Australian Shares Large Cap Index (before fund fees and expenses). The MSCI Australian Shares Large Cap Index targets coverage of around 70 per cent of free float-adjusted market capitalisation of the Australian share market. VLC has a fee of 0.20 per cent p.a.

• The Vanguard MSCI Australian Small Companies Index ETF (ASX code: VSO): Seeks to match the MSCI Australian Shares Small Cap Index (before fund fees and expenses). The MSCI Australian Shares Small Cap Index is a small capitalisation index generally consisting of the smaller companies on the Australian equity market targeting coverage of around 14 per cent of free float-adjusted market capitalisation of the Australian share market. VSO has a fee of 0.30 per cent p.a.
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• The Vanguard Australian Shares Index ETF (VAS) has been reduced from 0.27 to 0.15 per cent p.a.; and,
• The Vanguard Australian Property Securities Index ETF (VAP) has been reduced from 0.34 to 0.25 per cent p.a.
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Principal Real Estate Investors, the fourth largest institutional real estate manager in the United States, is among the greenest commercial real estate companies in the United States, according to Commercial Property Executive. The real estate publication’s annual ranking puts Principal Real Estate Investors in a class of companies forging the path for a sustainable future.

“It’s an honour to be recognised for our efforts in creating and implementing industry-leading green initiatives,” said Patrick Halter, chief executive officer of Principal Real Estate Investors. “We’ll continue to set the pace for institutional investors by optimizing building performance and reducing energy consumption.”

In 2010, Principal Real Estate Investors solidified a reputation for sustainable investment and property management with the Ten Pillars of Peak Performance, a program establishing environmental sustainability guidelines for property managers and joint venture partners that focuses on optimizing building performance and reducing energy consumption. More than 90 percent of the office buildings under management have completed some type of green building project, upgrade or improvement. This effort is projected to save approximately $12 million over the next eight years with minimal capital expenditures. The company’s focus on green initiatives has yielded impressive results:

• 3 percent reduction in energy consumption resulting in $1.2 million of savings.
• 24 buildings (more than 6.2 million square feet and $1.2 billion in value) are Leadership in Energy and Environmental Design (LEED®) certified, with an additional 68 buildings currently registered with the United States Green Building Council (USGBC) for LEED certification.
• Nearly 50 percent of the office buildings under management received the 2010 ENERGY STAR® designation and rank in the top 18 percent in the nation in building efficiency with an 82 overall ENERGY STAR rating.
• A company-wide commitment as an ENERGY STAR Partner to measure, track and improve energy performance.
• Becoming a signatory for the United Nations-backed Principles for Responsible Property Investment (RPI).

In 2009, Principal Real Estate Investors launched the Principal Green Property Fund I, LP, which is one of the first institutional commercial real estate funds to focus on investing in green properties. Additionally, the company’s core plus commingled fund ranked first among U.S. private property funds and sixth among global private property funds for corporate environmental policies and management2.

“Environmentally conscious building decisions offer investors a long-term competitive advantage over similar properties utilizing conventional practices and makes good business sense” said Halter. “The movement toward sustainable — or green — building practices is a structural change in the commercial real estate market, and we are committed to sustainable building practices throughout our portfolio.”

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Russell Investments is aiming to capture the inherent value premium in the Australian stock market with the launch of its second Australian ETF, the Russell Australian Value ETF (ASX code RVL).

RVL taps into Russell research on value premiums which shows that over time passive value based strategies have typically delivered a premium of 1.5%-3% over the broad market in Australia.

There is also a growing investor desire to capture this premium, creating a compelling opportunity for Russell to bring this opportunity to investors in the easily accessible form of an ETF.

“Before launching RVL, we talked to a range of investors to see what they wanted and found there is a gap for something which provides an easy way to access this part of the market,” said Scott Bennett, portfolio manager at Russell Investments.  “Russell pioneered style based indexes back in 1987 and we are excited to utilise our well regarded index capabilities and decades of experience to develop a local solution for the Australian market.”

RVL will provide exposure to a specially developed index, the Russell Australia High Value Index. The index works by taking the Russell Australia Large Cap Index and assigning all stocks a value score and a growth score based on price to earnings ratios and medium term earnings growth. From this each stock is given a total value score, which then determines the weight of each stock in the index.

First style-based ETF in Australia targets institutional investors

RVL will be the first style-based ETF to hit the Australian market and will have specific applications for institutions. It will aim to complement rather than compete with managed funds and can potentially be used as a plug for an active manager, while a new manager is being found.  Alternatively for fund managers who only want a value exposure at certain time, the ETF can be a quick and easy way of tilting a portfolio towards value.

“We have spoken extensively to institutions about their needs and potential future use of ETFs and discovered there is a gap in the market for a flexible, value-style tool,” said Mr Bennett

Another specific institutional use for RVL is for short term cash management. RVL provides a more targeted, easy to implement, exposure to help institutions manage shorter term cash positions.

RVL can also be used by managers who want to short value stocks, as opposed to accessing the exposure through a managed fund where it is only possible to go long.

In addition, RVL is well-suited to advisers and brokers, particularly those with a style based approach.

“As with our first ETF, we have invested heavily in researching what investors, in particular institutions want from an ETF and have developed this tailored solution. As Australia’s first style-based ETF, we are hoping to provide an easy way to access the value premium in the Australian market,” Mr Bennett concluded.

Russell’s approach to building ETFs based on investor needs has resonated well with investors. Russell’s first Australian ETF, the Russell Australia High Dividend ETF (RDV), has amassed over $140M assets under management since its launch less than a year ago.

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