A series of five actively managed asset allocation funds, the SAM Portfolios provide investors with a highly diversified investment solution that is simple to understand.
Each Portfolio is managed with a rigorous investment discipline that examines dozens of domestic and global economic forces to develop risk-adjusted investment strategies. With this in mind, the Portfolios are continually reallocated to benefit from evolving investment conditions.
Additionally, the multi-manager SAM Portfolios provide financial professionals with a robust practice management solution to help strengthen client acquisition and retention efforts.
The following is an economic and market outlook and an overview of the strategies implemented this quarter.
3Q 2015: The Power of Asset Allocation to Help Limit Volatility
Wide Diversification Helped Shield Portfolios from Volatility Stemming from China's Slowdown
The third quarter saw a significant uptick in volatility as the markets reacted to the slowdown in China, the world's second-largest economy. While equity markets around the globe gave back some of their early-year gains in August, U.S. markets did rally back in early September. Widespread diversification is especially important during these periods of short-term volatility in shielding overall portfolios from too much exposure to any one particular area of the financial markets. In addition, an active approach to asset allocation allows the SAM Portfolio management team to make quick moves, helping manage risk levels.
Despite the short-term reaction to China, as well as the debt crisis in Greece, the SAM team maintains a strong outlook for the U.S. economy. The domestic economy is being fueled by a strong consumer, powerful job growth, and rising home values. Corporate profits should continue to grow in this environment, though at a slower pace than earlier in the recovery. The Federal Reserve (the Fed) will continue to stay at the forefront of market news amid speculation circling around if and when they will raise interest rates.
While the global unrest in the third quarter may have delayed the Fed's first move, SAM portfolio management expects the first round of tightening to occur in 2015. Though the more extreme magnitude of the third quarter's volatility should subside, some degree of fluctuation will continue as markets digest global changes in interest rate policy and potential weaknesses in select emerging markets, which are especially dependent on energy production. In this environment, the SAM Portfolios will continue to balance exposure to higher-risk classes with positions that help to reduce overall risk levels.
Source: Standard & Poor's; S&P 500 Daily Closes October 1, 2013 – September 15, 2015.
Forecasts Favor a Continued Overweight in Equities
The SAM Portfolio Management team believes steady economic growth should persist throughout the second half of 2015. As global equity fundamentals remain strong, the SAM Portfolios continue to have a relative overweight in equity positions. Mid-cap U.S. stocks, which have performed relatively well in recent periods, and select alternative asset classes, which provide returns less tied to traditional bond and stock markets and thus form a valuable tool in risk management, are both favored by the SAM team. The Portfolios are currently positioned with an underweight to core fixed income given the outlook for higher interest rates and rising inflation pressures. Given this outlook, management favors high yield corporates and bank loans, looking to reduce exposure to more interest rate-sensitive issues such as government bonds and investment-grade corporates.
An overview of the positioning of the SAM Portfolios is as follows:
- Overweight equities, favoring positions in mid caps with strong fundamentals and looking for opportunities to add to international equities that are benefiting from a stabilized U.S. dollar and lower valuations.
- Favor the absolute return class, which can be a risk-reducing alternative to bonds.
- Underweight U.S. large caps that have significant multinational and energy exposure given potential earnings and profit challenges.
- Underweight U.S government bonds, mortgages, and longer-term corporate bonds in anticipation of rising interest rates.
- Favor higher-yielding corporate bond issues and bank loans that are more economically sensitive.
For additional information, including allocation changes and performance, click on your Portfolio to the right.