Global asset manager Russell Investments is implementing a series of strategic asset allocation changes to several retail product offerings in the U.S. market.
These products include the Russell LifePoints Funds, Target
Portfolio Series and Russell Core Model Strategies. The primary changes include
shifts in the fixed-income, U.S. equity, international equity and alternatives
asset class allocations, according to Russell. For most portfolios, the
reallocations take effect during the month of January.
“Our investment strategists are forecasting an environment
of modest returns through 2014, which can be challenging for some investors in
achieving a desired rate of return at a level of risk they are comfortable
with,” says Jeff Hussey, global chief investment officer at Russell, who is
based in Seattle. “Despite a lower-return environment, our outlook is not
pessimistic and we see promising opportunities for many investors maintaining
diversified, multi-asset portfolios with global exposure.”
The perspective of Russell’s team of global strategists is
outlined in its recently released 2014 annual global outlook report, which
highlights the firm’s expectations of modest global growth that should see
equities outperform cash and fixed income, despite some expected market
volatility.
“Many investors and financial advisers are struggling with
the best way to approach U.S. core fixed income in an environment in which we
expect interest rate increases,” says Phill Rogerson, managing director of
consulting and product services for Russell’s U.S. adviser-sold business.
“While we believe fixed income remains an important element of a diversified
portfolio, we feel the time is right to implement a modest decrease in core
fixed-income exposures and an offsetting increase to equity and high-yield bond
exposures that may benefit investors’ long-term investing goals with a
commensurate increase in risk.”
The specific portfolio reallocations include:
Fixed
income. Reallocating assets from core bond exposures (Russell Strategic
Bond Fund and Russell Investment Grade Bond Fund) to equities and global
high-yield bonds that represent a better return potential with
corresponding increase in risk.
U.S.
equity. Increasing overall exposure to U.S. equity, with a majority of
this increase going to the small-capitalization equity allocation, in an
effort to compensate for the lower return expectations of fixed-income
markets.
International
equity. Taking a more targeted approach to non-U.S. equity exposure with
an emphasis on emerging markets and adjustments within global equity
allocations.
Alternatives.
Changing the real asset composition by decreasing commodities and
increasing infrastructure allocations in an effort to maintain non-U.S.
exposure levels while also offering higher return potential.
“We believe that strategic asset allocation is one of the
primary determinants of investors’ progress toward their desired outcomes,”
said Rogerson. “The changes we are making to our products reflect Russell’s
best thinking and our commitment to providing investment solutions that are
broadly diversified, implemented utilizing some of the world’s leading money
managers and strategies, and dynamically managed to reflect the realities of
changing global market conditions.”
More information about these changes is available in an
online video featuring
Phill Rogerson.
The
“2014 Annual Global Outlook” report can be downloaded here.
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The
Office of Compliance Inspections and Examinations (OCIE), part of the
Securities and Exchange Commission (SEC), released its list of examination
priorities for 2014.
The OCIE is tasked with administering the SEC’s National
Examination Program (NEP). As part of the NEP, auditors in Washington, D.C.,
and in the commission’s 11 regional offices conduct reviews of SEC-registered
entities, including broker/dealers, transfer agents, investment advisers,
investment companies, securities exchanges, clearing agencies and
self-regulatory organizations.
The list is divided into five sections that cover
market-wide priorities and the NEP’s four program areas, which include the
following: investment advisers and investment companies; broker/dealers; exchanges
and self-regulatory organizations; and clearing and transfer agents.
There are six market-wide priorities identified in the
report:
Retirement Vehicles
and Rollovers. The SEC staff will undertake several initiatives related to
retirement vehicles and rollovers, including examining the sales practices of
investment advisers targeting retirement-age workers to roll over their
employer-sponsored 401(k) plan into higher-cost investments. Broker/dealers will
also be examined for improper marketing practices and such things as product suitability,
churning (excessive trading in a client account meant to generate extra commissions),
and use of misleading professional designations.
Fraud Detection and Prevention.
The U.S. capital markets are built on trust, says the OCIE, and such events
as scams, theft, unfair advantage and other fraudulent conduct erode that trust
and adversely affect investors and the efficient functioning of markets. For
that reason, the NEP will continue to utilize and enhance its quantitative and
qualitative tools and techniques to identify market participants engaged in fraudulent
behavior.
Corporate Governance,
Conflicts of Interest, and Enterprise Risk Management. The NEP will
continue to meet with senior management boards of entities registered with the
SEC, including their affiliates when appropriate, to discuss how each firm
actively identifies and mitigates conflicts of interest and other legal,
compliance, financial and operational risks.
Technology. The
capital markets are experiencing a decades-long revolution in technology, says
the OCIE, and the increasing complexity, interconnectivity and speed fostered
by technology continue to challenge market participants and regulators. The NEP
will continue to examine governance and supervision of information technology
systems, operational capability, market access, information security and
preparedness to respond to sudden malfunctions and outages.
Dual Registrants. The
convergence among broker/dealers and investment advisers continues to be a
significant risk for investors, argues the OCIE. Auditors will examine whether
representatives of dual registrants may influence whether a customer
establishes a brokerage or investment advisory account, which may in turn
create a risk that customers are placed in inappropriate accounts.
New Laws and Regulation. SEC staff will review general solicitation
practices and verification of accredited investor status under newly adopted
Rule 506(c) under the Securities Act of 1933. The staff will also be conducting
reviews to assess compliance with recently adopted rules by municipal advisers.
Similarly, in the event that rules are put in place regarding security-based
swaps dealers and other registered entities created or impacted by the Dodd-Frank
Wall Street Reform and Consumer Protection Act, the SEC expects to allocate
resources to conduct reviews of those registrants.
For the investment adviser and investment company
examination program, the SEC plans to examine such areas as safety of assets,
conflictions of interest inherent in certain investment adviser business
models, and marketing practices.
Other priorities in the investment adviser/company space
include examining SEC-registered advisers that have not yet been subject to any
examination, wrap fee programs, quantitative trading models, presence exams,
payments for distribution in guise, and fixed-income investment companies.
Money market funds and alternative investment companies are also slated for
closer examination, along with securities lending arrangements.
For broker/dealers, the SEC plans to examine inappropriate sales
practices and fraud risks, as well as general firm supervision levels and
securities trading practices. Also of importance for the 2014 NEP are
anti-money laundering programs.
Another area of regulatory concern for broker/dealers is the
suitability of variable annuity buybacks, following reports that insurance
companies are offering to repurchase variable annuity products with less
favorable terms.
Looking to self-regulatory organizations (SROs) and market
oversight, the SEC plans to continue regular reviews of the Financial Industry
Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board, and
the national securities exchanges for both equity and options markets.
Specific priorities in this area include targeted
examinations of perceived control weaknesses at the national exchanges. The
staff will continue its review of order types by focusing on the options
exchanges in 2014.
In
addition, the examination staff plans to coordinate with the Division of
Trading and Markets to conduct pre-launch reviews of new exchange applications
to determine whether each has the capacity to carry out its responsibilities as
an SRO by enforcing members’ compliance with federal law and the exchange’s own
rules.
Finally, the SEC also announced priorities for its clearance
and settlement exam program.
First, examiners will focus on the implementation of annual
exams for clearing agents, as mandated by the Dodd-Frank Act. That law requires
the SEC to annually audit the clearing agents for which it serves as the
primary supervisory agency. These include the Depository Trust Company, the
National Securities Clearing Corporation, the Fixed Income Clearing Corporation
and the Options Clearing Corporation.
Areas for review will be determined through a risk-based
approach that incorporates new rules and standards.
In examining transfer agents, SEC staff will focus on three
core activities: the timely turnaround of items and transfers; accurate
recordkeeping and associated retention; and the safeguarding of funds and
securities.
Other areas of focus will involve transfer agents that
service micro-cap securities and private offerings, policies and procedures
adopted by transfer agents for handling and transferring certain damaged
certificates, and agents serving as third-party administrators (TPAs) for
parties other than the issuer of a Section 12 security (such as a retirement
plan).
The
complete list of 2014 examination priorities is available here.