Investment Strategies Update – Q4 2025

As an investment consultant and portfolio manager for different clients, I manage a number of different investment strategies. Once you understand my investment philosophy, you’ll understand why I manage these strategies the way I do. I share the investment commentary on these strategies here.

U.S. CORE STRATEGIES

The U.S. Core strategies provide long-term exposure to core U.S. equity and bond markets. The strategies may have some exposure to non-core markets, including foreign assets and lower-quality fixed income. The strategies are structured to participate in the upside of bullish U.S. equity and credit markets. The strategies’ risk exposure is not tactically managed and can result in poor performance in weak U.S. market environments. The U.S. Core strategies are managed across Conservative through Aggressive risk profiles.

Performance Review

The U.S. Core strategies advanced in Q4 as U.S. equity and bond markets rallied. The strongest performance was from our exposure to a value-oriented equity strategy, followed by passive exposure to the S&P 500 Index. Allocations to large cap quality growth and quality dividend growth companies were also additive. Exposure to mid- and small cap managers lagged, as higher-quality, core mid- and small caps generally underperformed large cap stocks in the quarter.

In the U.S. Core strategies’ taxable bond allocation, exposure to active bond managers was additive. The strongest performance was from our positions in tactical, credit-sensitive bond managers. Our exposure to core, investment-grade bond managers was also a positive, but they lagged the more tactical managers. In the U.S. Core Muni strategies’ bond allocations, performance was mixed as active muni bond managers with longer duration generally outperformed, while managers underweight duration underperformed.

Positioning

Risk Assets

The U.S. Core strategies provide broad U.S. equity exposure through a mix of traditional market cap-weighted and factor-based indices, along with actively managed strategies. We emphasize diversification across various investment styles (growth, core, value) and market cap, maintaining a bias toward higher-quality companies that have solid balance sheets with sustainable growth potential.

Conservative Assets

The U.S. Core strategies maintain a diversified bond allocation across various sectors, credit qualities, and maturities. We continue to favor actively managed core and tactical bond managers for the strategies. We believe these bond managers possess the depth of resources and experience necessary to successfully navigate the complexities of the evolving bond market.

INCOME STRATEGIES

The Income strategies primarily invest in higher income-generating assets. This can include dividend-paying stocks, option-income strategies, investment-grade bonds, high-yield bonds, emerging markets debt and real estate securities. The strategies’ risk exposure is not tactically managed, which can result in poor performance in weak U.S. market environments. The Income strategies utilize mutual funds and ETFs to construct the strategies.

Performance Review

The Income strategies were positive in Q4 as global equity, multi-asset income strategies and bond markets rallied. The strongest performance came from our exposure to option income and international dividend growth strategies. Exposures to U.S. quality dividend growth, multi-asset income and closed-end funds were also additive. The strategies’ allocations to mid-cap dividend and global real estate income strategies detracted from performance.

Across the Income bond allocations, our overweight to credit-sensitive bond managers contributed positively as credit markets rallied. The strongest performance was from our exposures to tactical bond managers. Our dedicated exposure to an investment-grade, intermediate-term bond manager was additive but underperformed the more credit-sensitive managers.

For our Income – Ultra-Conservative strategy, the structured exposure to short-term bond managers weighed slightly on performance, though our exposure to tactical, credit-sensitive bond managers was a strong contributor. The strategy’s structural lack of equity exposure was a detractor relative to more diversified conservative strategies, as equity markets performed well in the quarter.

Positioning

Risk Assets

The Income strategies are constructed to generate higher income through a diversified, multi-asset approach. We also structure the strategies to capture long-term capital appreciation potential. To achieve this balance, we look beyond standard fixed income and allocate across global dividend growth companies and other higher-yielding investments, including global real estate securities, closed-end funds, and option income-based strategies. This approach allows us to layer multiple sources of income, reducing the reliance on any single sector while maintaining exposure to fundamental growth.

Conservative Assets

Within the Conservative Assets allocation of the Income strategies, we prioritize income generation by maintaining an overweight allocation to credit-sensitive bonds. The strategies are allocated to short- and intermediate-term active bond managers that have the experience and flexibility to actively adjust credit exposure as market conditions provide opportunities.

TOTAL RETURN STRATEGIES

The Total Return strategies provide long-term diversified exposure across U.S. and international equities, bonds and income-generating assets. The strategies are designed to provide exposure to the potential upside of equity and credit markets while seeking moderate income generation. The strategies’ risk exposure is not tactically managed and can result in poor performance in weak market environments. The Total Return strategies are managed across Conservative through Aggressive risk profiles.

Performance Review

The Total Return strategies generated positive performance in Q4 as global equities, multi-asset income strategies and bonds rallied. The strongest equity performance came from exposure to value-oriented strategies, international quality large cap, international small cap, and emerging markets. Global core and growth active equity managers also performed well. U.S. quality growth and quality dividend growth managers contributed positively, while dedicated U.S. mid-cap equity exposure lagged. Multi-asset income and closed-end fund strategies were additive but generally lagged core U.S. and international large cap, market cap-weighted equity indices.

In the Total Return taxable bond allocation, our exposure to tactical, credit-sensitive bond managers added value as credit markets generally outperformed. Exposure to investment-grade, intermediate-term bond managers also contributed positively but underperformed the tactical, credit-sensitive strategies. In the Total Return Muni strategies’ bond allocation, performance among active muni managers was mixed. Relative results were largely driven by duration positioning, as interest rate-sensitive munis generally outperformed for the quarter.

Positioning

Risk Assets

The Total Return strategies are constructed for both capital appreciation and income through diversification. The strategies’ equity exposure remains allocated across U.S. and foreign markets and diversified across market cap and investment styles. This can help prevent the strategies from being overly reliant on any single factor for growth. To generate additional income, the strategies maintain exposure to tactical, multi-asset income and closed-end fund strategies.

Conservative Assets

The Total Return strategies utilize a diversified approach to bond investing that relies heavily on active bond managers. We allocate a portion of the allocation to bond managers focused on high-quality, investment-grade debt to provide core bond exposure. We also allocate to more flexible, tactical bond managers that can tactically adjust risk exposure across bond sectors and credit quality as market conditions develop. We believe this blend of core exposure and flexibility gives the strategies an opportunity to successfully manage through various bond market environments.

U.S. CORE X STRATEGY

The U.S. Core X strategy provides long-term exposure to core U.S. equity and bond markets. The strategies may have some exposure to non-core markets, including foreign assets and lower-quality fixed income. The strategies are structured to participate in the upside of bullish U.S. equity and credit markets. The strategy is tactical in nature, allowing for the use of leveraged investments to attempt to generate higher returns. The use of leveraged investments can increase the risk of the strategy. Leveraged investments should be considered speculative investments and may not be suitable for all investors.

Performance Review

The U.S. Core X strategy benefited from the broad rally in U.S. equities in Q3.  Passive exposure to the S&P 500 Index, large cap dividend growth and small cap stocks were solid contributors to the strategy in Q3.  Dedicated exposure to actively managed mid cap growth and U.S. value strategies were positive contributors in the quarter but these areas generally underperformed U.S. large caps in Q3.

Due to the broad rally in U.S. equities in Q3, our positions across leveraged large, mid and small caps supported results.  Leveraged exposure to U.S. small caps was the strongest contributor in the quarter, followed by leveraged exposure to the NASDAQ 100 and S&P 500 indices. While leveraged exposures contributed in Q3, these strategies may magnify both gains and losses.

Positioning

Risk Assets
As the U.S. equity market rallied significantly from the lows experienced in April, we were reducing leveraged exposure from positions we had entered in Q1 and Q2 and took profits.  In August, we reduced our tactical leveraged overweight to the Dow Jones Industrial Average Index and reallocated proceeds to our existing unleveraged position in a U.S. quality dividend growth equity manager.  In September, we reduced our tactical leveraged overweight to small caps and reallocated to our existing position in an equity strategy that focuses on investing in higher quality smaller cap companies.  We currently maintain a tactical leveraged overweight to U.S. mid caps. We remain mindful that leveraged exposure can increase risk and volatility for the U.S. Core X strategy.

For our core, non-leveraged holdings, we maintain diversification by market cap and investment style, across growth, core, and value-oriented strategies.  To achieve the desired U.S. equity exposure, we favor a blend of cost-efficient market cap–weighted indexes, fundamentally based index strategies, and actively managed equity strategies.

GLOBAL UNCONSTRAINED STRATEGY

The Global Unconstrained strategy provides long-term diversified exposure across U.S. and international equities, bonds and income-generating assets. The strategies are structured to participate in the upside of bullish equity and credit markets and provide moderate income generation. The strategy is tactical in nature, allowing for dedicated positions to attempt to generate higher returns and/or hedged positions to attempt to reduce risk. The strategy may utilized leveraged investments, which can increase the risk of the strategy. Leveraged investments should be considered speculative investments and may not be suitable for all investors.

Performance Review

The Global Unconstrained strategy was supported by strong performance across global equity and bond markets in Q3.  Exposure to leveraged equity strategies contributed in Q3, led by exposure to biotech, U.S. small caps, China and diversified emerging market equities, though these strategies carry higher risk and volatility.  Across our non-leveraged positions, the strategy’s allocations to the S&P 500 Index, U.S. large cap dividend growth, U.S. and international small caps and emerging market equities were the strongest contributors for the quarter.  While certain exposures supported results, other areas underperformed during the quarter. Exposure to global equity, multi-asset income and closed-end fund strategies was also beneficial in the quarter, but these areas generally underperformed other areas in Q3.

Positioning

Risk Assets
As global equities rallied significantly from their April lows earlier this year, we reduced our leveraged equity exposures throughout the quarter to take profits from positions entered at lower levels.  In July, we reduced exposure to leveraged Chinese equities, diversified emerging markets, and biotech.  We also completely sold out of our leveraged semiconductor equity position in July.  We reallocated these proceeds to U.S. large cap quality, dividend growth and higher quality small cap company equity strategies.  As biotech stocks continued to rally throughout the quarter, we further reduced our leveraged biotech exposure and reallocated proceeds to higher quality small cap company equities. 

For our non-leveraged core positions, the strategy emphasizes diversified positions across market capitalizations, investment styles, and geographic regions. We build this diversification through a combination of passive index, fundamentally driven index, and actively managed strategies, prioritizing high-quality, growth-oriented companies. To enhance income generation, we also allocate to dynamic multi-asset income and diversified closed-end fund strategies.  Within our leveraged equity allocation, the strategy maintains leveraged exposures to Chinese, diversified emerging markets, biotech, mid cap and small cap equities.