Does Russell Add Value?

Last Updated Feb 23, 2011 12:02 PM EST

On Wednesday, we saw how the active strategies of SEI haven't been enough to generate alpha. Today, we'll see if Russell Investments fared any better.

Russell may boast an even greater resume than SEI. The company makes its stance on its manager capabilities very clear, noting that it brings "some of the world's best money managers to the core of your portfolio." Russell certainly has the hardware to back that up, having received the 2010 Lipper Fund Award for its emerging markets fund, outranking 173 similar funds to earn the distinction.

As we did with SEI, we'll compare the company's funds to the passively managed funds of Dimensional Fund Advisors for the areas where comparable funds exist. The period is 2000-2010, as that is the longest time period for which data is available for each of the funds we'll examine (including the SEI funds we saw previously).

When looking at domestic funds, the Russell funds lagged the passive returns of DFA. Let's see if international funds fared any better.

While Russell fared better than SEI, it still failed to outperform passively managed alternatives. Even the award-winning emerging markets fund fell short, tying the DFA Emerging Markets Portfolio and lagging DFA's small-cap and value emerging markets funds (even though the Russell fund is free to invest in those asset classes).

The two companies we've looked at have tremendous resources at their disposal and have access to some of the best and brightest managers in the business. Still, despite all their advantages, they simply haven't been able to demonstrate outperformance over the long term.

If the best and brightest can't demonstrate outperformance, what are the odds you or your advisor can? Ask yourself what advantage you or they have over SEI and Russell? Do you or they have more resources, more time or more skills? If you can't identify an advantage, what logic is there in believing you or your advisor will succeed when others have failed? You might note that there are many advisors who use Russell and SEI funds, so you might ask yourself what value they're adding. Adopting a passive strategy gives you the best chance of reaching your financial goals.

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    Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.