The following additional information should be read in conjunction with section 4 of each PDS:
Other risks to consider
Investors should be aware that there are risks associated with investing in a Fund. While section 4 of each PDS summarises the significant risks for each Fund, the following table identifies all the risks that apply to each of the Funds (those marked o). Each of these risks is described below the table.
• Interest rate risk: some Funds may be sensitive to movements in domestic and international interest rates. Generally, the value of fixed income securities will change inversely with changes in interest rates. As interest rates rise, the market value of fixed income securities tends to decrease, and vice versa.
• Derivatives risk: some Funds may be exposed to exchange-traded and over-the counter derivative instruments including but not limited to currency forwards and swaps, interest rate and total return swaps and futures and options. Derivatives usually derive their value from the value of a physical asset, interest rate, exchange rate or market index. They can be used to manage certain risks in investment portfolios; however, they can also expose a portfolio to additional risks. A risk, though not unique to derivatives, includes the possibility that the position is difficult or costly to reverse or that there is an adverse movement in the asset, interest rate, exchange rate or index underlying the derivative, as derivatives do not always perfectly or even highly correlate or track the value of the assets, rates or indices they are designed to track.
A derivative contract may involve leverage i.e. it provides exposure to a potential gain or loss from a change in the level of the market price of a security, currency or basket index in a notional amount that exceeds the amount of cash or assets required to establish or maintain the derivative contract. Consequently, an adverse change in the relevant price level can result in a loss of capital that is more exaggerated than would have resulted from an investment that did not involve the use of leverage. Accordingly, derivative instruments can be highly volatile and expose investors to a high risk of loss.
• Liquidity risk: some Funds may be exposed to assets including other managed investment schemes that have restricted or limited liquidity. In extreme circumstances this may result in delays in processing withdrawal requests due to general market interruptions or inadequate market depth.
• Counterparty and settlement risk: some Funds may be exposed to counterparty and settlement risk. These risks are influenced by, amongst other things, market practices (e.g. settlement and custody practices), the creditworthiness of the parties a Fund is exposed to including derivative counterparties, and the level of government regulation in countries in which a Fund invests.
• Currency risk: the Funds that have exposure to foreign assets will be exposed to currency risk. Currency movements may affect the performance of these Funds. Some Funds may use currency hedging programs.
For the Funds that are identified as fully hedged, although the benchmark is to be 100% currency hedged, some foreign currency exposures can remain which may affect the investment values of these Funds.
• Performance fee risk: performance fees may be charged by us or by an underlying investment manager or underlying fund. Performance fees are based on realised and unrealised gains. Therefore, a performance fee may be paid on unrealised gains that may never subsequently be realised. In addition, performance fees may provide an incentive to make investments that carry more risk than those made in the absence of a performance fee.
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• Emerging markets risk: the Funds exposed to emerging market securities may be subject to higher levels of market volatility leading to higher general investment risk. Interest rate and currency risks may be greater due to higher levels of volatility in the economies of emerging markets. Furthermore, emerging market securities are often less liquid than the securities of developed markets. Counterparty and settlement risks are also increased.
• Short selling risk: some Funds may be exposed to short selling. This is where an asset is sold that the investor does not actually own, with the aim of gains being made if the asset’s price falls, and can be bought back later at a lower price. Short selling involves a higher level of risk than normal investment in shares. This is because when the underlying fund invests in shares the maximum loss is generally limited to the amount invested. With short positions, there is theoretically no limit on the loss because the loss will continue to increase as the price of the share increases.
• Leverage or borrowing risk: some Funds may be exposed to leverage or borrowing strategies that can magnify both gains and losses on investment returns. Money borrowed will be subject to interest and other costs, which may or may not exceed the income received from the instruments purchased with borrowed funds. Leverage creates an opportunity for greater returns, but at the same time, may significantly increase the risk of your investment in a Fund.
• Alternative strategies risk: some Funds may have exposure to alternative investments. There are potentially increased risks inherent in alternative investments. These may include a higher exposure to counterparty and settlement risk, liquidity risk, short selling risk, and more leverage than traditional investment strategies.
• Credit risk: some Funds may be exposed to credit risk. Credit risk refers to the issuer of a debt instrument or banks holding cash deposits failing to meet an obligation to pay periodic interest, to repay the principal sum at maturity or to otherwise honour its obligations. Unrated or low grade debt securities are generally subject to greater risk of loss of principal and interest than higher rated securities.
• Political risk: investments may be affected by uncertainties such as political developments, changes in law or government policies, and currency repatriation restrictions on foreign investment in some countries to which a Fund may be exposed.
• Market Risk: the market price of the Fund’s investments may fluctuate as a result of such factors as economic conditions, regulations, sentiment and geopolitical events as well as environmental, social and technological changes. These fluctuations may impact on the value of the investments in the Fund which will impact on the unit price of the Fund.
• Underlying funds’ absence of regulatory oversight: some Funds may be exposed to managed investment schemes established in other jurisdictions that do not have an equivalent level of investor protection to that which is provided in Australia. Investment in such schemes may also adversely impact the transparency of a Fund.
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- How we invest your money
The following additional information should be read in conjunction with section 5 of each PDS for the Russell Investments Diversified Funds listed below:
Russell Investments Diversified Funds
For the purposes of this section 5 the Russell Investments Diversified Funds include each of the following Funds:
• Russell Investments Conservative Fund
• Russell Investments Diversified 50 Fund
• Russell Investments Balanced Fund
• Russell Investments Growth Fund
• Russell Investments High Growth Fund
The Russell Investments Diversified Funds provide exposure to a mix of investments through allocations to selected asset classes, within pre-determined ranges as set out in each Russell Investments Diversified Fund’s PDS.
Investment Management
As well as appointing investment managers to manage the assets of the Russell Investments Diversified Funds, we, or other members of Russell Investments, may directly manage a portion of the assets of the Fund or of an underlying fund in which the Fund is invested.
Strategic Asset Allocation
The Strategic Asset Allocation (SAA) is the starting point for all asset allocation decisions.
We may adjust a Russell Investments Diversified Fund’s SAA (within the ranges specified in the PDS) at any time without notice to you.
We may also adjust the actual exposure to a particular asset class within the ranges specified in the PDS for each Fund.
You should read the important information about the current SAA for each Russell Investments Diversified Fund – go to https://russellinvestments.com/au/disclosures.
The material relating to the SAA for each Russell Investments Diversified Fund may change between the time when you read this Additional Information Booklet and the day when you acquire the product
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Asset Classes
The Russell Investments Diversified Funds may be exposed to a variety of asset classes including, but are not limited, to the following: Asset Class Types of investments Australian Shares Australian listed and unlisted equity-type securities, listed investment companies and investment trusts, Australian equity-type derivatives and managed investment schemes that provide exposure to any of the aforementioned. International Shares International listed and unlisted equity-type securities, listed investment companies and investment trusts, international equity-type derivatives and managed investment schemes that provide exposure to any of the aforementioned. Property Australian and international unlisted property funds and property related securities, and hybrid property-type vehicles. Fixed Interest Debt securities issued by supranationals, Australian and international governments, quasi-governments, government agencies and corporates, structured credit securities including mortgage and asset backed securities, fixed interest type derivatives and managed investment schemes that provide exposure to any of the aforementioned. Cash Cash deposits and money market securities (including but not limited to bank bills and certificates of deposit), corporate floating rate notes, interest rate swap contracts and managed investment schemes that provide exposure to any of the aforementioned. Alternatives Alternatives may include non-traditional asset sectors (e.g. high yield debt, emerging markets debt, commodities, infrastructure and private equity) and strategies (e.g. hedge funds, long-short equities, absolute return multi-asset strategies and volatility management strategies) and managed investment schemes that provide exposure to any of the aforementioned.
The Russell Investments Diversified Funds generally gain exposure to these asset classes by investing in a range of Russell Investments Sector Funds but may also invest in other underlying funds. We may also appoint investment managers directly (including managers that are members of Russell Investments) to manage a portion of the assets of a Russell Investments Diversified Fund.
Currency management
Assets within the Russell Investments Diversified Funds that have an exposure to foreign currencies may be unhedged and/or partially or fully hedged. We may actively manage the unhedged/hedged currency exposure of the Russell Investments Diversified Funds. Active currency management has the potential to add further value but can also expose the Russell Investments Diversified Funds to greater risk.
Exposure management
Investment managers of the Russell Investments Diversified Funds (including members of Russell Investments) may also use derivatives and/or exchange traded funds to manage asset allocations. This allows for more efficient rebalancing and repositioning across and within asset classes than if these Russell Investments Diversified Funds were to buy or sell the underlying securities.
Leverage
The Russell Investments Diversified Funds may, through their exposure to alternative investments, be indirectly exposed to gearing and leverage.
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The following additional information should be read in conjunction with section 5 of each PDS for the Russell Investments Sector Funds listed below:
Russell Investments Sector Funds
The Russell Investments Sector Funds generally invest in a single asset class by appointing investment manager(s) directly (including members of Russell Investments) and/or by investing in underlying funds. However, in certain circumstances, the Responsible Entity may manage some Russell Investments Sector Fund assets itself including by using an EPI approach as described below.
Investment Management
Russell Investments may implement investments in listed securities using an enhanced portfolio implementation (EPI) approach. This is designed to reduce portfolio turnover and therefore reduce transaction costs. With EPI, Russell Investments receives model portfolios from the Fund’s selected investment managers and Russell Investments manages the portfolio of shares in a single account. The EPI approach centralises trading at the total fund level. This compares to a traditional multi-manager approach where each investment manager trades within their own account, without regard to the activities of the other investment managers in the Fund.
Strategic Asset Allocation
The Strategic Asset Allocation (SAA) is the starting point for all asset allocation decisions. We may adjust a Russell Investments Sector Fund’s SAA (within the ranges specified in the PDS) at any time without notice to you. We may also adjust the actual exposure to a particular asset class within the ranges specified in the PDS for each Fund.
The following additional information should be read in conjunction with section 5 of each PDS for each of the Funds:
Derivatives
Derivatives such as futures, options, swaps and forward contracts may be used by the Funds or underlying funds from time to time to: achieve a desired investment position without buying or selling the underlying asset; implement investment strategies; as a hedging mechanism to protect against changes in the market value of existing investments; or to manage actual or anticipated risk.
In particular, these Funds may use futures contracts to equitise cash holdings. Those Funds that have foreign currency exposures may use derivatives to manage currency exposures.
The Funds that invest in fixed income securities may use a range of derivatives to manage interest rate, currency, duration and credit risk. Derivatives may also be used to create net short positions in the assets of some of the Funds.
Currency management
Some of the Funds may use currency hedging as part of their investment strategy. Currency hedging is an investment strategy that aims to reduce currency risk, thereby protecting or potentially improving returns. However, it may also reduce potential gain from investments. Derivatives including, but not limited to, forward foreign exchange contracts and swaps may be used to reduce the impact of currency fluctuations. Currency hedging may be implemented by us (including other members of Russell Investments) or by an investment manager appointed by us.
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