Russell Investments Multi-Asset Income Strategy Fund — Class A (RIM0089AU) Report & Performance

The Fund’s equity portfolio was mixed over the period. In terms of domestic equities, both the Russell Investments Australian Opportunities Fund (RAOF) and the Vinva Australian Equitised Long-Short Fund delivered positive absolute and excess returns for the month. RAOF’s outperformance was driven in part by stock selection within the materials space, including an underweight to iron ore major Fortescue Metals Group, while Vinva’s Australian Equitised Long-Short strategy benefited largely from its valuation and quality signals. Within our global equities portfolio, the Russell Investments Global Opportunities Fund and the Russell Investments Global Opportunities Fund – $A Hedged recorded positive absolute returns in July but narrowly underperformed their respective benchmarks. Much of the funds’ underperformance was driven by stock selection within the emerging markets space, including an ex-benchmark holding in Taiwan Semiconductor Manufacturing Co. and an underweight to South Korean steel maker POSCO. We maintain a diversified equity exposure across both global and Australian markets. We still prefer non-US developed equities over US equities. We believe non-US developed equities are relatively cheaper and likely to benefit from weakness in the US dollar (USD) should the Fed become less hawkish.

Within the Fund’s traditional fixed income portfolio, the Russell Investments International Bond Fund – $A Hedged and the Russell Investments Australian Bond Fund delivered positive absolute and excess returns for the month. Both funds benefited from a long-held overweight to credit. In terms of our extended fixed income exposure, Metrics Credit outperformed government bonds over the period, with Australian loans continuing to generate income-like returns. Global floating rate credit and the Russell Investments Australian Floating Rate Fund also performed well in July. We believe US, UK and German government bonds offer reasonable value. In the US, the spread between two- and 10-year government bond yields is close to an extreme. We believe it’s likely the yield curve will steepen in the coming months, which it tends to do when the Fed finishes raising interest rates and markets start looking toward rate cuts. Meanwhile, Japanese government bonds look expensive despite the Bank of Japan’s recent announcement regarding their yield curve control policy.

The Fund also benefited from its exposure to global and Australian listed property, while a weaker Australian dollar (relative to the USD) boosted the returns of the Fund’s assets denominated in foreign currency. In terms of overall positioning, we reduced the Fund’s exposure to global and Australian equities in July. We also added to the Fund’s duration exposure while reducing our holdings in high-yield and emerging markets debt.

Markets have faced multiple concerns in the past 12 to 24 months; including Russia’s invasion of Ukraine, surging inflation, central bank tightening, a slowing Chinese economy and regional banking crises in the US and Europe. Moving forward, the main uncertainty for markets is the outlook for the US economy. Whilst economic data so far this year has proven more resilient than markets initially expected, our base case remains that a recession in the US is more likely than not. The upside risk for the US economy and markets comes from the possibility that US core inflation has peaked. This, combined with some softening in the labour market, could allow the Fed to become less hawkish through the second half of the year.

The Fund’s equity portfolio was mixed over the period. In terms of domestic equities, the Russell Investments Australian Opportunities Fund outperformed its benchmark, benefiting from stock selection within the materials space. This included underweights to iron ore major BHP Group and diversified miner South32; both of which significantly underperformed the broader market over the period. The Russell Investments High Dividend Australian Shares ETF generated positive absolute returns for the quarter. Within our global equities portfolio, both the Russell Investments Global Opportunities Fund and the Russell Investments Global Opportunities Fund – $A Hedged underperformed their respective benchmarks over the period; though they did generate strong absolute returns for the quarter. Both funds were impacted by poor stock selection in the US, including underweights to large growth names like Apple and electric car maker Tesla. We maintain a diversified equity exposure across both global and Australian markets. We still prefer non-US developed equities over US equities. We believe non-US developed equities are relatively cheaper and likely to benefit from weakness in the US dollar (USD) should the US Federal Reserve (Fed) become less hawkish.

Within the Fund’s traditional fixed income portfolio, the Russell Investments Australian Bond Fund recorded negative absolute returns for the quarter; though it did outperform its benchmark, benefiting in part from an overweight to credit. The Russell Investments International Bond Fund – $A Hedged delivered negative absolute and benchmark-relative performance over the period. In terms of our extended fixed income exposure, Metrics Credit performed well over the period, with Australian loans continuing to generate income-like returns. Our exposure to global high-yield debt also added value, while the Russell Investments Australian Floating Rate Fund outperformed its benchmark as floating rate assets continued to benefit from a higher interest rate environment. We believe US, UK and German government bonds offer reasonable value. In the US, the spread between two- and 10-year Treasury yields is close to an extreme. We believe it’s likely the yield curve will steepen in the coming months, which it tends to do when the Fed finishes raising interest rates and markets start looking toward rate cuts. Meanwhile, Japanese government bonds look expensive, with the Bank of Japan maintaining its 0.50% yield limit.

The Fund also benefited from its exposure to global and Australian listed property, while a weaker Australian dollar (relative to the USD) boosted the returns of the Fund’s assets denominated in foreign currency.

Markets have faced multiple concerns in the past 12 to 24 months; including Russia’s invasion of Ukraine, surging inflation, central bank tightening, a slowing Chinese economy and regional banking crises in the US and Europe. Despite these events and more, the US economy has so far proven remarkably resilient; though we are seeing several leading economic indicators flash warning signs. Moving forward, the main uncertainty for markets is the outlook for the US economy. We believe the pace and magnitude of Fed tightening has created the risk of a recession in the next 12 to 18 months; though any potential recession is expected to be mild to moderate. The upside risk for the US economy and markets comes from the possibility that US core inflation has peaked. This, combined with some softening in the labour market, could allow the Fed to become less hawkish in the second half of the year.

The Fund’s equity portfolio was mixed over the period. In terms of global equities, the Russell Investments Global Opportunities Fund delivered positive absolute returns for the month but underperformed its benchmark. Much of the Fund’s underperformance was driven by stock selection in the US; notably underweights to large cap names like NVIDIA Corp., Apple and Tesla. The Russell Investments Global Opportunities Fund – $A Hedged recorded both negative absolute and excess returns in May. Within our Australian equities portfolio, the Russell Investments Australian Opportunities Fund posted negative absolute returns in May, though it did outperform its benchmark; the Fund benefiting in part from stock selection within the energy sector. This included overweights to oil and gas producer Santos and energy retailer Ampol. In contrast, Vinva’s Australian Equitised Long-Short Fund recorded both negative absolute and excess returns over the period, driven largely by the strategy’s behavioural and segmentation signals. Meanwhile, the Russell Investments High Dividend Australian Shares ETF underperformed the broader equity market in May. We maintain a diversified equity exposure across both global and Australian markets. We still prefer non-US developed equities over US equities. We believe non-US developed equities are relatively cheaper and likely to benefit from weakness in the US dollar should the Fed become less hawkish.

Within the Fund’s traditional fixed income portfolio, the Russell Investments International Bond Fund – $A Hedged delivered both negative absolute and excess returns in May. The Russell Investments Australian Bond Fund also recorded negative absolute returns for the month, though it did perform in line with its benchmark; the Fund benefiting in part from an overweight to credit. In terms of our extended fixed income exposure, Metrics Credit performed well over the period, with Australian loans continuing to generate income-like returns. Global floating rate credit and the Russell Investments Australian Floating Rate Fund also outperformed in May. We believe government bond valuations have improved, with US Treasuries now offering good value. UK bonds have also moved into bands which we believe offer good value, as have German bunds. Japanese bond valuations have begun to improve with recent changes to the Bank of Japan’s yield curve control policy, though the Bank’s key short-term interest rate remains low at -0.10%. A positive for government bonds is that we believe markets have fully priced in hawkish outlooks for most central banks. In our view, this should limit the extent of any further selloff.

Meanwhile, a weaker Australian dollar boosted the returns of the Fund’s assets denominated in foreign currency.

In terms of overall positioning, we increased the Fund’s duration exposure as bonds sold off toward the end of the month. We did this by increasing our holdings in both the Russell Investments International Bond Fund – $A Hedged and the Russell Investments Australian Bond Fund.

Markets have faced multiple concerns in the past 12 months or so; including Russia’s invasion of Ukraine, surging inflation, central bank tightening, the impact of COVID-19 on China’s economy and, most recently, uncertainty surrounding the global banking system. Moving forward, the main uncertainty is the outlook for the US economy, with the pace and magnitude of Fed tightening creating the risk of a recession. We feel a slowdown or mild recession are the two most likely outcomes. The upside risk for the US economy and markets comes from the possibility that US core inflation has peaked. This, combined with some softening in the labour market, could allow the Fed to become less hawkish through the second half of the year.

The Fund’s equity portfolio contributed positively to performance over the period. In terms of global equities, both the Russell Investments Global Opportunities Fund and the Russell Investments Global Opportunities Fund – $A Hedged delivered positive absolute and excess returns in April; the two funds benefiting in part from strong stock selection in the UK.

This included ex-benchmark holdings in stockbroker Numis Corp. and price comparison website Moneysupermarket.com. Within our Australian equities portfolio, the Russell Investments Australian Opportunities Fund outperformed its benchmark on the back of strong stock selection within the materials sector; notably underweights to major miners BHP Group and Fortescue Metals Group. In contrast, Vinva’s Australian Equitised Long-Short Fund underperformed its benchmark over the period; though it did record positive absolute returns for the month.

The strategy’s valuation and quality signals weighed the most on benchmark-relative returns. Meanwhile, the Russell Investments High Dividend Australian Shares ETF performed in line with the broader equity market in April. We maintain a diversified equity exposure across both global and Australian markets. We still prefer non-US developed equities over US equities. We believe non-US developed equities are relatively cheaper and likely to benefit from weakness in the US dollar should the Fed become less hawkish.

Within the Fund’s traditional fixed income portfolio, the Russell Investments Australian Bond Fund delivered positive absolute and excess returns in April, benefiting in part from its long-held overweight to credit. The Russell Investments International Bond Fund – $A Hedged was flat against its benchmark in April; though it did record positive absolute returns for the month. In terms of our extended fixed income exposure, Metrics Credit performed well over the period, with Australian loans continuing to generate income-like returns. The Russell Investments Australian Floating Rate Fund also outperformed, benefiting from a combination of running yield in excess of the benchmark and credit spread dynamics. We believe government bond valuations have improved, with US Treasuries now offering good value. UK bonds have also moved into bands which we believe offer good value, as have German bunds. Japanese bond valuations have begun to improve with recent changes to the Bank of Japan’s yield curve control policy, though the Bank’s key short-term interest rate remains low at -0.10%.

A positive for government bonds is that we believe markets have fully priced in hawkish outlooks for most central banks. In our view, this should limit the extent of any further selloff. Elsewhere in the Fund, our exposures to global listed infrastructure and global and Australian listed property added value in April, while a weaker Australian dollar boosted the returns of the Fund’s assets denominated in foreign currency.

Markets have faced multiple concerns over the past 12 months or so; including Russia’s invasion of Ukraine, surging inflation, central bank tightening, the impact of COVID-19 on China’s economy and, most recently, uncertainty surrounding the global banking system following the collapse of several US banks and the forced sale of Credit Suisse. Moving forward, the main uncertainty is likely to remain the outlook for the US economy.

We believe the pace and magnitude of Fed tightening creates the risk of a recession by the second half of this year. While a deep recession could trigger a larger equity bear market, we feel a slowdown or mild recession are the two most likely outcomes. The upside risk for the US economy and markets comes from the possibility that US core inflation has peaked. This, combined with some softening in the labour market, could allow the Fed to become less hawkish in the second half of the year

Within the Fund’s traditional fixed income portfolio, the Russell Investments Australian Bond Fund delivered positive absolute and excess returns for the quarter, benefiting from its duration positioning and an overweight to credit. The Russell Investments International Bond Fund – $A Hedged recorded positive absolute returns over the period but narrowly underperformed its benchmark. This underperformance was driven largely by interest rates positioning. In terms of our extended fixed income exposure, Metrics Credit performed well over the period, with Australian loans continuing to generate income-like returns. The Russell Investments Australian Floating Rate Fund and our exposure to global high-yield debt also added value. We believe government bond valuations have improved, with US Treasuries now offering good value.

UK bonds have also moved into bands which we believe offer good value, as have German bunds. Japanese bond valuations have begun to improve with recent changes to the Bank of Japan’s yield curve control policy, though the Bank’s key shortterm interest rate remains low at -0.10%. A positive for government bonds is that we believe markets have fully priced in hawkish outlooks for most central banks. In our view, this should limit the extent of any further selloff.

The Fund’s equity portfolio was mixed over the period. In terms of domestic equities, the Russell Investments Australian Opportunities Fund significantly outperformed its benchmark, benefiting from strong stock selection within the financials space. This included underweights to National Australia Bank, Commonwealth Bank of Australia, Westpac Banking Corp. and ANZ Group; collectively known as the ‘Big Four’. In contrast, Vinva’s Australian Equitised Long-Short Fund underperformed its benchmark, driven largely by the strategy’s segmentation signals. Partly offsetting this were good gains from the strategy’s quality and tactical signals. Within our global equities portfolio, both the Russell Investments Global Opportunities Fund and the Russell Investments Global Opportunities Fund – $A Hedged underperformed their respective benchmarks over the period; though they did generate strong absolute returns for the quarter. Both funds were impacted by poor stock selection in the US, including underweights to large growth names like Apple, NVIDIA Corp. and electric car maker Tesla. We maintain a diversified equity exposure across both global and Australian markets. We still prefer non-US developed equities over US equities. We believe non-US developed equities are relatively cheaper and likely to benefit from weakness in the US dollar should the Fed become less hawkish.

The Fund also benefited from its exposure to global and Australian listed property and global listed infrastructure; all of which benefited from the sharp decline in longer-term government bond yields we saw over the period. Meanwhile, a weaker Australian dollar boosted the returns of the Fund’s assets denominated in foreign currency.

Markets have faced multiple concerns over the past 12 months or so; including Russia’s invasion of Ukraine, surging inflation, central bank tightening, the impact of COVID-19 on China’s economy and, most recently, uncertainty surrounding the global banking system following the collapse of several US midsize banks and the forced sale of Credit Suisse. Moving forward, the main uncertainty is likely to remain the outlook for the US economy. We believe the pace and magnitude of Fed tightening creates the risk of a recession by the second half of this year. While a deep recession could trigger a larger equity bear market, we feel a slowdown or mild recession are the two most likely outcomes. The upside risk for the US economy and markets comes from the possibility that US core inflation has peaked. This, combined with some softening in the labour market, could allow the Fed to become less hawkish in the second half of the year.

The Fund’s equity portfolio was mixed over the period. In terms of global equities, both the Russell Investments Global Opportunities Fund and the Russell Investments Global Opportunities Fund – $A Hedged underperformed their respective benchmarks in February; though the former did record positive absolute returns for the month. Both funds were impacted by poor stock selection in the US; notably underweights to large growth names like Apple, NVIDIA Corp. and electric car maker Tesla. Within our Australian equities portfolio, the Russell Investments Australian Opportunities Fund (RAOF) significantly outperformed its benchmark over the period, benefiting from strong stock selection within the materials space. This included underweights to BHP Group and Pilbara Minerals; both of which declined amid general weakness across the broader commodities complex. However, RAOF did record negative absolute returns for the month. Similarly, Vinva’s Australian Equitised Long-Short Fund recorded negative absolute returns in February but outperformed its benchmark; the strategy benefiting largely from its behavioural and segmentation signals. The Russell Investments High Dividend Australian Shares ETF underperformed the broader equity market over the period. We maintain a diversified equity exposure across both global and Australian markets. We still prefer non-US developed equities over US equities. We believe non-US developed equities are relatively cheaper and likely to benefit from weakness in the US dollar (USD) should the Fed become less hawkish.

Within the Fund’s traditional fixed income portfolio, the Russell Investments International Bond Fund – $A Hedged delivered negative absolute returns in February but narrowly outperformed its benchmark. This outperformance was driven largely by active currency positioning, including a long USD position, and an overweight to credit. The Russell Investments Australian Bond Fund was flat for the month. In terms of our extended fixed income exposure, both Metrics Credit and the Russell Investments Australian Floating Rate Fund performed well over the period; the latter continuing to benefit from running yield in excess of the benchmark. In contrast, global high-yield debt underperformed in February; though the impact of this underperformance on overall returns was relatively modest given that we recently trimmed the Fund’s global high-yield debt exposure. We believe government bond valuations have improved, with US Treasuries now offering good value. UK bonds have also moved into bands which we believe offer good value, as have German bunds. Japanese bond valuations have begun to improve with recent changes to the Bank of Japan’s yield curve control policy, though the Bank’s key short-term interest rate remains low at -0.10%. A positive for government bonds is that we believe markets have fully priced in hawkish outlooks for most central banks. In our view, this should limit the extent of any further selloff.

Elsewhere in the Fund, our exposure to global and Australian listed property weighed on overall performance as government bond yields jumped on the back of US rate hike expectations. Meanwhile, a weaker Australian dollar boosted the returns of the Fund’s assets denominated in foreign currency.

Moving forward, recession fears and central bank tightening will continue to drive market volatility. Share markets had bounced considerably off their recent lows amid expectations inflation may have peaked, however February saw a reversal of this trend as economic data revealed inflation is proving to be more persistent. We acknowledge that heightened short-term market volatility is likely to remain given responses across markets to ongoing inflation prints and central bank rate hike decisions.