Investment Strategies Update – Q1 2026

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 utilize mutual funds and ETFs to construct the strategies.

Performance Review

The U.S. Core strategies declined in Q1 as U.S. growth stocks and credit-sensitive bond markets faced downward pressure.  The largest equity detractors in the quarter were from our exposure to U.S. large and mid cap growth stocks and a valuation-focused manager.  Passive exposure to the S&P 500 Index was also a detractor in Q1.  Our exposure to a dividend growth equity manager helped to mitigate volatility relative to the broader decline in growth stocks for the quarter.  Our dedicated position in an equity manager focused on higher-quality small caps was a relative positive contributor in the U.S. Core strategies in the quarter. 

In the U.S. Core strategies’ taxable bond allocation, our exposure to active bond managers delivered mixed results.  Bond managers with less interest rate sensitivity and less credit exposure outperformed those tactical bond managers with higher credit exposure as credit markets were generally weaker in Q1.  In the U.S. Core Muni strategies’ muni bond allocations, the active bond managers’ performance exceeded that of core, intermediate-term investment-grade muni bond indices for the quarter.

Positioning

Risk Assets

The U.S. Core strategies provide broad equity exposure by blending traditional market-cap and factor-based indices with active management from third-party investment managers. The strategies seek diversification across growth, core, and value styles and market capitalization. We maintain a preference toward companies with stronger balance sheets and the potential for sustainable growth, with the objective of providing a diversified core equity foundation for long-term investors.

Conservative Assets

The U.S. Core strategies utilize a multidimensional approach to investing in the bond markets, providing exposure across diverse sectors, credit tiers, and maturities. We utilize active core and tactical bond managers who we believe offer the experience needed to try to navigate today’s shifting bond environments. This allocation to active bond managers seeks to provide the portfolio with a flexible foundation through evolving credit cycles.

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 declined in Q1 as global equity markets exhibited mixed performance and credit-sensitive bond markets declined.  Relative to more growth-oriented equities, income-generating equities generally demonstrated greater resilience during the equity decline in Q1.  Within the equity allocation, the strongest relative contributors were our positions in a mid cap dividend-paying equities manager, a global real estate income manager and an international quality dividend growth manager.  Our other positions across U.S. dividend growth, valuation-oriented option income, tactical multi-asset income and closed-end fund managers delivered negative returns in the quarter, but generally outperformed core large cap U.S. and global equity indices. 

Within the Income bond allocations, our overweight to credit-sensitive bond managers was a primary detractor as credit markets weakened in the quarter.  A position in a short-duration credit-sensitive manager had positive relative performance as its lower sensitivity to rising interest rates was beneficial.  A position in an investment-grade-focused core bond manager was also a relative contributor in Q1.

For our Income – Ultra-Conservative strategy, performance was effectively flat for Q1.  Our structural overweight to shorter-duration bond managers served as a relative contributor as rising interest rates put downward price pressure on longer-duration bonds, allowing shorter-duration bond managers to outperform on a relative basis.  This was partially offset by our positions in credit-sensitive managers that detracted as credit markets generally declined in Q1.

Positioning

Risk Assets

The Income strategies utilize a diversified, multi-asset approach intended to generate income and seek long-term capital appreciation. We allocate across diverse income sources, including global dividend-paying companies, real estate securities, closed-end funds, and option-based strategies. These multiple yield components are designed to reduce reliance on any single asset class while seeking to maintain exposure to the strategies’ capital appreciation objectives.

Conservative Assets

Within the Conservative Assets allocation, we prioritize income by overweighting our allocation to credit-sensitive bonds. The Income strategies utilize active short- and intermediate-term bond managers with the intended flexibility to adjust credit exposure as market opportunities arise. This active approach seeks to generate yield while navigating changing market environments.

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 structured to participate in the upside of bullish equity and credit markets and provide 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 utilize mutual funds and ETFs to construct the strategies.

Performance Review

The Total Return strategies experienced a decline in Q1 as global equity and bond markets faced broad-based volatility.  Exposures to U.S. large and mid cap growth stocks were the largest overall detractors from performance in the quarter.  Passive exposure to the S&P 500 Index was also a key detractor in Q1. Our exposures to global equity managers and closed-end funds also negatively impacted results in the quarter.  The strongest relative contributor in Q1 was our exposure to emerging market equities.  Other areas of relative outperformance came from our positions in higher-quality international large caps and international small caps as these areas delivered positive returns in Q1. 

In the Total Return taxable bond allocation, performance was mixed across the active bond managers that we allocate to.  The weakest performance was driven by our allocation to credit-sensitive, tactical bond managers as credit markets generally weakened in Q1.  In the Total Return Muni strategies’ bond allocation, results were mixed across the active bond managers, but their positioning allowed stronger performance relative to core, intermediate-term muni bond indices in the quarter.

Positioning

Risk Assets

The Total Return strategies seek capital appreciation and income through broad diversification. Equity exposure spans U.S. and foreign markets, diversified by market capitalization and investment style. To help generate income, we maintain allocations to a tactical, multi-asset income-generating manager and closed-end funds. We believe this approach of diversified, global equity exposure plus income generation could help balance the Total Return strategies across different market environments.

Conservative Assets

The Total Return strategies utilize active bond managers to provide diversified exposure across the bond markets. We allocate across core bond managers focused on higher-quality, investment-grade debt and tactical managers who can adjust risk across sectors, duration and credit quality. We believe this combination could provide the Total Return strategies with an opportunity to effectively navigate 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 declined in Q1 as U.S. equities were challenged.  The strongest relative contributors to the strategy were exposures to leveraged core U.S. mid caps and an equity manager that focuses on higher-quality small caps, as mid and small caps generally outperformed other holdings in Q1. With U.S. large cap core and growth stocks experiencing weakness in the quarter, our leveraged exposure to the S&P 500, NASDAQ 100 and Dow Jones Industrial Average was a material detractor.  Other detractors included non-leveraged exposure to the S&P 500 Index, high-quality large/mid cap stocks, a valuation-conscious equity manager and mid cap growth stocks. 

Positioning

Risk Assets
In early January, following U.S. mid cap stocks reaching an internal price target, leverage was reduced from an overweight position to a neutral level.  Since that reduction in leverage, the U.S. Core X strategy has maintained a neutral risk level across all target leveraged positions.  With recent market volatility, the U.S. Core X strategy continues to be monitored for potential tactical rebalancing opportunities and the possibility of increased leveraged exposure should areas of the U.S. equity market decline to pre-determined target levels.

Non-leveraged exposure remains positioned across a mix of passive exposure to the S&P 500 Index, factor-weighted equity indices and actively managed strategies.  This exposure is intended to provide diversification across U.S. market cap and growth/core/value investment styles.

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 utilize 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 declined in Q1 as global market volatility increased.  Performance across positions in the strategy was mixed.  The strongest relative contributors to performance included equity exposure to leveraged and non-leveraged diversified emerging markets, international small caps, leveraged U.S. biotech, leveraged U.S. mid caps and high-quality small caps.  Other positions in the strategy were negative in Q1, with the material detractors coming from leveraged China equities, U.S. large and mid cap growth equities, and global equity managers.  Multi-asset income and closed-end funds were also negative in the quarter.

Positioning

Risk Assets
At the end of March, as volatility from the Iran conflict intensified and U.S. growth stocks declined, a position in leveraged technology stocks was added to the strategy.  No other changes to the strategy were made in Q1 as other areas of the broader markets did not reach internal price targets.

The Global Unconstrained strategy remains allocated to a blend of U.S. and international equities and multi-asset income strategies through third-party investment managers. The Global Unconstrained strategy seeks to maintain diversification across market cap and investment styles, with a preference for exposure to higher-quality companies with growth potential.

Our general allocation to international developed and emerging markets remains as valuations appear relatively attractive.  The allocation multi-asset income and closed-end funds is intended to generate income and provide a potential balance in range bound market environments, with the potential to act as a source of capital to increase equity exposure if markets provide an opportunity to do so.

In addition to the new position in leveraged U.S. technology stocks, the leveraged positions in U.S. mid and small caps, U.S. biotech, diversified emerging markets and Chinese equities remain.  As these leveraged positions can be highly volatile, there may be potential opportunities for tactical rebalancing or increasing leveraged exposure should equity markets decline further from current levels.