A series of five actively managed asset allocation funds, the SAM Potfolios 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.
The Power of Diversification in a Calmer Market Environment
Active Moves within Asset Classes Help Manage Risk and Add to Relative Results
As we move through the third quarter, the 2008 peak of the financial crisis is now five years in our rear-view mirror. While the recovery has been slow, global economies have stabilized and U.S. equity markets have regained standing, surpassing prior highs to break all-time records in 2013. During much of the rebound, markets and asset class performance have shifted quickly, with the power of diversification helping address the movement in one particular area of the markets. Today, there remain powerful benefits for maintaining wide levels of diversification. While markets have calmed relative to the extreme volatility seen early in the recovery, widespread diversification helps manage risk and provides investors with exposure to more asset classes to help deliver the potential to add to incremental results.
The active management style of the SAM Portfolios allows managers to quickly make tactical moves to help manage risk levels. An example of this is with the recent uptick in interest rates. The SAM Asset Allocation Team has been reducing the allocation to longer-term bonds, which are more sensitive to interest rate movements and adding to positions that are more economically sensitive. When rates moved higher, these moves helped reduce the impact on the SAM Portfolios. In addition, management has been adding to overall equity positions and the Portfolios have been rewarded with strong relative results from this positioning. With supportive fundamentals and a powerful earnings environment, the SAM Portfolios continue to have an overall overweighting to equities. While global market performance was somewhat mixed during the third quarter, employment and housing continued to improve and the SAM Asset Allocation Team expects the U.S. economy to continue its slow and steady growth trajectory.
Five Years Have Passed since the Height of the Financial Crisis
The DJIA from July 31, 2008 - September 16, 2013
Monthly closes of the Dow Jones Industrial Average (DJIA). Individuals cannot invest directly in an index.
SAM Portfolios Positioned for Continued Slow Growth
Global governments have been holding short-term interest rates historically low throughout the recovery period, but there are early indications that this policy could begin to shift, which sent longer-term interest rates higher than they had been in recent periods. The SAM Asset Allocation Team had been anticipating this shift and had been reducing interest rate exposure by lowering allocations to long-term government bonds and adding to higher-yielding corporate bonds and mortgage-backed securities. Within equities, recent moves have slightly favored small-cap stocks over large-sized companies and emerging markets over developed international positions. Management still favors U.S. markets over international positions given current market fundamentals, yet feels that the global positions will help to widen diversification and to manage risk of the Portfolios. It is the allocations to some of the less traditional asset classes such as real estate, preferred stocks, and global positions that can be less directly tied to movement in more traditional domestic bond and stock markets, allowing the potential for stronger relative results. Current SAM positioning includes:
- Moving out of longer-term U.S. government bonds in favor of fixed-income positions that are less sensitive to the potential for rising interest rates.
- Overall overweighting to equity positions given strong fundamentals and continued economic growth.
- Slight overweighting in small-cap U.S. stocks and emerging markets over developed international markets.
- Moving from an overweighted position in growth-style equity positions to a more neutral position, adding to value allocations.
For additional information including allocation changes and performance, select the appropriate Portfolio in the Performance menu above.