Products June 16, 2014

Sage Advisory Services Launches Custom LDI Solution

June 16, 2014 (PLANSPONSOR.com) – Sage Advisory Services, an Austin, Texas-based asset manager, released a liability-driven investing (LDI) solution tailored for small pension plans.
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Providers of LDI strategies have historically focused their services on major pension plan sponsors, the firm says. But the increasing use of exchange-traded funds (ETFs) has expanded the opportunity for smaller pension funds to create asset mixes that closely resemble their liability streams. The strategy can minimize the volatility of plan funded status, an important risk measure for the plan sponsor.

Sage is targeting defined benefit pension plans with between $1 million and $10 million in assets for the new LDI service. Sage will work with these clients to implement an ETF-driven portfolio that allows sponsors to buy individual securities at a cost-effective price point. Portfolios are comprised of credit and government bond ETFs that closely match the duration, yield to maturity, and option-adjusted spread of a plan’s liability benchmark, the firm says. Sage asset managers then adjust the portfolio monthly to reflect changes in the liabilities and the discount curve.

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“Through our depth of experience in ETF-based solutions and liability driven investing, Sage can deliver customized solutions for clients of any size,” says Robert Smith, the chief investment officer at Sage. “We focus on purpose-driven investing, and a well-managed ETF-based LDI portfolio is the ideal solution for small defined benefit plans.”

Sage provides daily online access to holdings, characteristics and performance data, as well as custom monthly and quarterly portfolio statements. These reports provide plan sponsors and investors with a full-spectrum view of the performance of the ETF-based LDI strategy relative to their custom liability benchmark characteristics, the firm says.

Key features of the LDI solution include the following:

  • Client-specific asset/liability analysis and LDI planning;
  • Ongoing guidance on portfolio construction and optimization;
  • Monthly rebalancing by experienced fixed income management team;
  • Quarterly reporting relating to the specific liabilities of the client;
  • Complete annual review of plan status;
  • Plan sponsor can set specific fixed income/equity split in accordance with risk tolerances; and
  • LDI portfolio is matched to the duration and other characteristics of the client’s unique liability rather than a generic long duration strategy.

More information is available at www.sageadvisory.com.

Investing June 16, 2014

Russell Realigns Equity Indexes

June 16, 2014 (PLANSPONSOR.com) – Global asset manager Russell Investments announced the annual realignment of its global equity indexes to reflect market change from the past year.
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Done each June, this year’s rebalance will impact approximately $5.2 trillion in assets benchmarked to and nearly $800 billion in assets invested in institutional and retail investment products based on the Russell Indexes. Russell has released the lists of companies set to join or leave the Russell Global Index, Russell 3000 Index and Russell Microcap Index when the annual reconstitution for its U.S. equity indexes concludes on June 27.

“Today the global equity markets receive their annual report card,” says Ron Bundy, CEO of Russell Indexes, based in Seattle. “Index reconstitution is a critical time for our global indexes and for our clients. Because this process includes our entire index family and impacts investors around the world, it is one of the most closely watched market events of the year. This year’s reconstitution is even more significant as it has been 30 years since Russell first introduced market indexes.”

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Since the Russell 1000, 2000 and 3000 Indexes were introduced in 1984, the Russell family of global market indexes has grown to reflect three decades of growth in the global equity markets. For example:

  • An original member of the Russell 3000, Apple Inc. had a market cap of $1.6 billion in June 1984. At May 30, 2014 (ranking day for 2014 reconstitution) it is $545.3 billion as Apple retains the top spot;
  • As of the beginning of 1984, total U.S. market cap was $1.8 trillion, as measured by the Russell 3000. At this year’s reconstitution, this number is $23.2 trillion; and
  • In 1984, the breakpoint between the Russell 2000 and the Russell 1000 was $255 million. At this year’s reconstitution, it is $3.1 billion.

The United States leads global equity markets to new all-time highs, with leadership shifts toward large-cap value in the U.S. as peripheral Europe rebounds, according to Russell.

For this year’s reconstitution period, from May 31, 2013 through May 30, 2014, Russell reports that the total market cap for the Russell 3000 Index, reflecting about 98% of the investable U.S. equity universe, increased nearly 18% to $23.2 trillion . The U.S. small cap Russell 2000 Index increased more than 17% to $2 trillion. And the breakpoint between U.S. small- and large-cap stocks of $3.1 billion is a new record and up 19% from $2.6 billion in 2013.

“This year’s Russell rebalance reflects continued lumpiness in the global economy, with notable shifts in market leadership and important differences across regions and countries,” says Stephen Wood, Russell Investments’ chief market strategist. “U.S. growth continues, albeit at a slower pace than 2013, with small cap, growth-oriented stocks ceding the stage to large-cap value in recent months. While structural risks remain in Europe, the region may begin to benefit from favorable European Central Bank policies. And while there are areas of opportunity in emerging and frontier markets, we also expect wide differences across countries. The diverse nature of global returns in the past year suggests the benefit of a globally diversified, multi-asset investment approach.”

In the U.S. market, the Russell 1000, 2000 and 3000 Indexes all reached new record highs in the past year. Large caps outperformed small caps during the one-year period ending May 30, 2014, with a 20.9% return for the Russell 1000 Index relative to a 16.8% return for the Russell 2000 Index. Year-to-date, performance leadership in the U.S. has shifted to large-cap value, with the Russell 1000 Index outperforming the Russell 2000 Index and the Russell 1000 Value Index outperforming the Russell 1000 Growth Index.

The largest three companies in the Russell U.S. Indexes in terms of total market capitalization at this year’s reconstitution are Apple, Inc. ($545.3 billion), ExxonMobil Corp. ($431.7 billion) and Google, Inc. ($385.6 billion).

Total market cap for the Russell Global Index, reflecting about 98% of the investable global equity universe, increased 2% to $54.6 trillion for this year’s reconstitution period, from May 31, 2013 through May 30, 2014. The global index (which includes the U.S. market) experienced an 18.1% increase for the 12-month period ending May 30, 2014, while the Russell Global ex-U.S. Index returned 15.9% for the same period. Top performing developed market countries over the last year include Spain (46.4%), Denmark (44.3%), Italy (39.6%) and Finland (38.6%). 

With a one year return of 5.7%, the Russell Emerging Markets Index lagged compared to developed markets. Top performing emerging market countries included the United Arab Emirates (75.9%), Egypt (50.3%) and Greece (27.6%). While Egypt exhibited strong performance over the last 12 months, persistent economic and market risks associated with Egypt resulted in Russell’s reclassification from emerging to frontier market status as of reconstitution 2014.

The Russell Frontier Index returned 16% in the 12 months ended May 30, 2014, with Qatar (54.5%) the top performing country. Qatar’s strong equity market growth caused its index weight to be capped at the maximum of 15%, according to Russell Frontier Index methodology.

The largest company in the Russell Global ex-U.S. Index is now Netherlands-based Royal Dutch Shell PLC with a total market cap of $254.5 billion, replacing Petrochina Co, Ltd.

The lists of projected additions and deletions for the Russell Indexes are now available at the Russell reconstitution website.

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