Principal Strategic Asset Management (SAM) Portfolios

Focused on Managing Overall Risk Levels

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.

SAM News

The following is an economic and market outlook and overview of the strategies implemented this quarter.

2Q 2015: Prolonged Stability in Global Financial Markets

Slow and Steady Advances in Global Economic Growth Support Widespread Diversification

The second quarter of 2015 continued the theme of coupling slow growth with some uncertainty in both the equity and fixed-income markets as investors balance economic strength with the potential for rising interest rates. Stocks have advanced in 2015, yet gains have been subdued in recent months as longer-term interest rates have also ticked higher. This has been consistent with the Strategic Asset Management (SAM) Portfolios' outlook and subsequent positioning. Broad diversification and exposure to multiple asset classes have helped temper volatility and provide positive results. The portfolio management team points to strong employment as a key support sign, as 280,000 jobs were added in May 2015, with an unemployment rate of 5.5 percent. A healthy workforce underpins a positive economic and equity market outlook. Even with the significant strength of the U.S. dollar relative to the euro, the global markets have also advanced. Investor sentiment has improved given plans for the European Central Bank's accommodative policy.

With this supportive economic backdrop, fixed-income yields remain low. In 2015, bond yields have moved higher on the long end with the 10-Year Treasury yield rising 25 basis points (one hundredth of one percent, used chiefly in expressing differences of interest rates), or 0.25 percent, since the beginning of the year, and the 30-Year Treasury rising 40 basis points. In this environment, it is important to watch interest rate risk and duration in assessing bond sensitivity to interest rate changes. The SAM management team has favored shorter durations while anticipating rising rates, although they are rising slower than early expectations.

Domestic Indices At or Near Record Highs:

Strong Job Growth Supporting Positive Economic Forecasts

Source: Bureau of Labor Statistics, Month Change is Nonfarm Payrolls, Thousands of Jobs

The Power of Active Asset Allocation and Far-Reaching Diversification

The SAM Portfolios are actively managed and focus on delivering comprehensive access to an extremely wide selection of asset classes. The portfolio management team constantly monitors global markets to make active moves in managing risk in an effort to help investors meet long-term goals. For the first half of 2015, the Portfolios benefited from an overweight to equities and especially growth stocks, which have led the way year-to-date. Management favored growth stocks in both large-cap and mid-sized companies, adding to relative results across each of the SAM Portfolios. The allocation to the non-traditional class of international real estate, an asset class the SAM team continues to favor, also boosted performance in 2015. Portfolio managers continue to favor mid-sized firms and U.S. stocks given relative earnings and the strength of the dollar. Overall, in a slower growth environment, non-traditional asset classes and market segments can help provide incremental results while helping manage volatility in more traditional classes.

Reviewing the fixed-income portion of the Portfolios, SAM investors have benefited from an overweight to higher-yielding corporate bonds and shorter-term positions, an important consideration with interest rate increases looming. International fixed-income positions have lagged slightly but continue to provide a good source of diversification.

An overview of the positioning of the SAM Portfolios is as follows:

  • Overweight equities, as they still have some upside potential, but carefully monitoring valuations relative to earnings.
  • Favor domestic over international, but have an overweight in international real estate.
  • Looking for mid-cap strength, favoring growing, quality companies with attractive yields.
  • Anticipating rising interest rates, but slower than expected and therefore favoring shorter-term bond holdings with less sensitivity to interest rates changes.
  • Favor higher-yielding corporate bond issues that are more economically sensitive.

For additional information, including allocation changes and performance, click on your Portfolio to the right.

Hear from Portfolio Manager Todd Jablonski.