VolatilitySite_Learning

What is Russell doing to protect my superannuation?

Russell's central view remains that the US and global economies continue on a path of gradual recovery – even though that recovery is fragile and sub-par. We believe market sentiment is fluctuating more dramatically than changes in the underlying economic fundamentals.

For that reason, we would caution most investors against repositioning their portfolios to cash at this time. Our course of action is to remain close to our strategic asset allocation in times of elevated volatility.

While market swings have been large, one point to note is that asset class relationships have been broadly behaving the way we expected them to behave. In other words, bond prices are rising when share prices are falling. This reiterates the strong case for portfolio diversification. At Russell, diversified funds include a variety of asset classes including shares, bonds, cash and alternatives.

Over the last two years we have introduced a range of strategies designed to provide additional diversification and cushion the portfolio during volatile times. These include Australian unlisted property, absolute return (Russell Alpha Fund)*, opportunistic high yield* and emerging market bonds and commodities exposures. These new, diversifying strategies have been helping to mitigate the impact of declining equity markets.

In May of this year we also increased the level of our strategic tilt against the Australian dollar from 'low' to 'medium'. We view this as an increased defensive feature that is expected to pay off in the event of heightened risk aversion. This week, we saw the Australian dollar briefly fall below parity with the US dollar after reaching a post-float high of US$1.10 at the beginning of August. This means that our short Australian dollar position has been a positive contributor to the portfolios.

While our diversified funds are not immune to large swings in the sharemarkets, our current strategic asset allocation and the tilt away from the Australian dollar have been designed to mitigate the effects of volatility.

*This Fund is organised under the laws of Ireland and is not registered for sale in Australia.