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 overview of the strategies implemented this quarter.
Current Bull Market Celebrates its Fifth Anniversary
The short-term cyclical shift underscores the benefits of active asset allocation
After closing 2013 on a high note, equity markets have been mixed in the first quarter of 2014. However, indicators support our position that the global recovery will continue and we are anticipating a shift from what has been a protracted recovery to a more normal mid-cycle economic expansion. Central banks, such as the Federal Reserve, are poised to provide the liquidity to help drive continued advancement, as overall global growth came in at an estimated 3%, with projections for 2014-2015 even higher.1 In this environment equities have led the way, as 2013 was one of the 10 strongest years on record for the S&P 500. In fact, the current bull market celebrated its 5-year anniversary in early March, as the S&P 500 has advanced over 175% from the lows hit in 2009.2
While equity markets have been up just slightly in 2014, longer-term interest rates settled down a bit, boosting the performance of bond investments. The shifts in performance in the first quarter of 2014 highlight what we believe to be the importance of a well-diversified portfolio to help manage investors’ impact from one particular area of the financial markets. As markets inevitably ebb and flow in response to economic growth, changes in interest rates, and earnings reports, a well-diversified portfolio may limit the impact from any one area or asset category.
Celebrating Five Years of the Current Bull Market Run2
Calculations are based on historical index performance and are shown for illustration purposes only. Past performance does not guarantee future results. The S&P 500 is a market-capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market.
The SAM Portfolios are Currently Positioned for a Positive Growth Environment
In contrast to the "muddle-through" economic recovery forecast in prior periods, the SAM Team forecast calls for positive overall global growth. Going forward, the outlook also remains positive for riskier asset classes including equities, with an overweight in both domestic equities and small-cap stocks. High quality stocks in particular show potential for both earnings and valuation growth in 2014. While we do not think that inflation will surface, bond investors will likely confront rising interest rates in 2014 and because of this, we favor less interest rate-sensitive areas of the fixed-income markets. We continue to favor classes such as corporate, international, and high yield bonds, and have reduced positions in U.S. government bonds and mortgage-backed securities. It is of note that fixed-income assets have added to relative results thus far in 2014.3
Looking through the short-term uncertainty, the SAM Portfolio Management team approaches 2014 with this positive outlook and has tactically positioned the Portfolios accordingly. The team is closely watching policy shifts and equity market valuations, but with consumer confidence and spending on the rise, we believe that investors will be rewarded for allocations to higher risk classes. This is particularly true if rising interest rates negatively impact core fixed-income products. An overview of the positioning of the SAM Portfolios is as follows:
- The Portfolios are positioned for an improving global economic environment as well as improving conditions for both consumers and companies.
- The Portfolios favor domestic equity, especially small companies, and corporate bond investments given the outlook for the mid-cycle recovery to continue.
- The Portfolios are underweight fixed-income investments given the potential for rising U.S. interest rates.
- The Portfolios added to small positions in some alternative classes like absolute return and real estate as an alternative to traditional bond investments.
For additional information including allocation changes and performance, select the appropriate Portfolio in the Performance menu above.
1 International Monetary Fund, World Economic Outlook Update, Is the Tide Rising?, January 2014.
2 S&P 500 closing values, March 9, 2009 — March 10, 2014.
3 As of March 31, 2014.