Investment Strategies Update – Q2 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 rallied in Q2 as U.S. equities and bonds generated positive performance. The strongest contributors to performance in Q2 included exposure to mid cap growth, passive exposure to the S&P 500 Index, quality small caps and quality large/mid cap growth equity strategies.  Exposure to an actively managed value manager was also a positive contributor but the positions lagged the other equity strategies in the quarter.

In the U.S. Core strategies’ taxable bond allocation, our exposures to tactical, credit-sensitive bond managers were significant contributors to performance in the quarter.  Our exposures to core, intermediate-term bond managers also added to performance in Q2, but these positions lagged the tactical bond managers.  In the U.S. Core Muni strategies’ muni bond allocations, our position in a tactical municipal bond manager was the strongest contributor. Positive contributions also came from our core, intermediate-term municipal bond managers, but they lagged the tactical municipal bond manager in Q2.

Positioning

Risk Assets

The U.S. Core strategies provide exposure to U.S. equities by blending traditional market-capitalization and factor-based indices with active strategies from third-party investment managers. The portfolio provides broad diversification across growth, core, and value investment styles, as well as various market capitalizations. We believe a diversified equity approach with a preference for growing, higher-quality companies can act as a strong foundation for long-term investors.

Conservative Assets

The U.S. Core strategies focus on providing broad U.S. bond exposure across sectors, credit quality, and maturities. We prefer to allocate to active core and tactical bond managers who we believe have the deep experience that is vital for navigating today’s shifting fixed-income markets. We believe taking an active bond management approach has the potential to better navigate through various credit cycles.

In Q2, we replaced an intermediate-term taxable bond manager with another actively managed, core, intermediate-term bond ETF strategy.  Also in Q2, within our U.S. Core Muni strategies, we transitioned from an actively managed, core, intermediate-term municipal bond manager to another actively managed, core, intermediate-term municipal bond ETF manager.  We believe these manager changes allow the U.S. Core taxable and municipal bond exposures to be actively managed for potential success over the long term.

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 rallied in Q2 as investors supported income-generating assets and credit-sensitive bonds.  Within our equity allocation, the strongest contributors to performance included our positions in valuation-sensitive equity option-income, U.S. dividend growth, U.S. mid cap dividend, international dividend growth, closed-end funds and global real estate income strategies.  Our positions in tactical multi-asset income and core U.S. large cap option-income strategies were also positive contributors in Q2, but they lagged the other strategies in the quarter.

Within the Income strategies’ bond allocations, our allocation to credit-sensitive bond managers was a key driver of performance in Q2, as credit-sensitive bonds rebounded from the weakness experienced in Q1.  Our strongest contributors to performance in Q2 were our exposures to tactical credit-sensitive bond manager.  Our positions in a core, investment-grade manager and a short-duration credit-sensitive manager were positive, but they lagged the tactical managers in Q2.

Our Income – Ultra-Conservative strategy also rallied in Q2 as positioning in credit-sensitive, short-term and tactical bond managers generated positive performance.  All positions contributed positively in the quarter, but our positions in credit-sensitive, tactical bond managers outperformed our positions in short-term bond managers in Q2.

Positioning

Risk Assets

The Income strategies seek to generate current income while pursuing long-term capital appreciation. Portfolio exposure is distributed across a wide range of income-generating assets, including global dividend-paying equities, real estate securities, credit-sensitive bonds, closed-end funds, and option-based strategies. By taking a multi-asset, multi-strategy approach, the portfolio reduces its reliance on any single asset class while attempting to meet its income and growth objectives.

Conservative Assets

Within the conservative portion of the Income strategies, we prioritize income generation by maintaining an overweight position in credit-sensitive bonds. The Income strategies utilize active short- and intermediate-term bond managers who have the ability to dynamically adjust their risk exposures. This active management approach attempts to generate yield while navigating evolving bond 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 generated positive performance in Q2 as global equity and bond markets rallied.  The strongest contributors to equity performance in Q2 were exposures to diversified emerging markets, U.S. large and mid cap growth, global growth, passive exposure to the S&P 500 Index, and U.S. dividend growth equity strategies. Other positive contributors in the quarter were equity exposures to international small cap and global value strategies, but these areas generally underperformed the other equity exposures in the quarter.  Our dedicated allocations to multi-asset income strategies were also beneficial in Q2, but these positions lagged the other pure equity strategies in the quarter.

In the Total Return strategies’ taxable bond allocation, performance was led by exposures to credit-sensitive, tactical bond managers as credit markets rallied in Q2.  Our positions in core, investment-grade-focused bond managers were also positive contributors, but these positions lagged the tactical bond managers in the quarter.  In the Total Return Muni strategies’ bond allocation, the strongest contributor was our exposure to a tactical, credit-sensitive municipal bond manager. Our positions in core municipal bond managers were also additive, but they trailed the credit-sensitive municipal bond manager in Q2.

Positioning

Risk Assets

The Total Return strategies target a mix of capital appreciation and income through global diversification. Equity exposure is spread across both U.S. and international markets, diversified by market capitalization and investment style. To increase income generation, we incorporate allocations to closed-end funds alongside a tactical, multi-asset income manager. We believe this blend of global equity exposure and income generation could help provide some balance across changing market environments.

Conservative Assets

The Total Return strategies are allocated to active bond managers for diversified exposure across the fixed-income markets. The allocation balances core bond managers with tactical managers capable of dynamically adjusting their risk exposures depending on the market environment. We believe this combined approach gives the Total Return strategies the flexibility needed to navigate short-term uncertainties while maintaining long-term objectives.

In Q2, we replaced an intermediate-term taxable bond manager with another actively managed, core, intermediate-term bond ETF strategy.  Also in Q2, within our Total Return Muni strategies, we transitioned from an actively managed, core, intermediate-term municipal bond manager to another actively managed, core, intermediate-term municipal bond ETF manager.  We believe these manager changes allow the Total Return taxable and municipal bond exposures to be actively managed for potential success over the long term.

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 generated positive returns in Q2 as U.S. equities performed well in the quarter.  Performance was led by positive contributions from each of the portfolio’s leveraged U.S. equity positions.  Additional contributions came from non-leveraged exposures to mid cap growth, passive S&P 500 Index, high-quality large/mid cap growth and high-quality small cap equity managers.  Allocations to a large cap quality dividend growth manager and a valuation-sensitive equity manager were also positive contributors in Q2, but these positions lagged the other positions in the quarter.

Positioning

The U.S. Core X strategy seeks to provide diversified exposure to U.S. equities across market cap and investment styles through passive, factor-based and actively managed third-party managers.  The strategy is also tactically allocated to leveraged equity strategies, providing leveraged exposure to U.S. large, mid and small cap passive equity indices.  No tactical adjustments to leverage were made in Q2.  As U.S. equities are near all-time highs, leveraged exposure is currently at a neutral target level.  Should U.S. equities decline to predetermined levels, leveraged exposure may be increased at that time.  The strategy intends to tactically rebalance positions should allocations fall outside of their target ranges or if volatility provides potential opportunities to do so.

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 rallied in Q2 as positions in equity and multi-asset income strategies were supported by investors.  The primary contributors to performance in the quarter were from leveraged positions in U.S. mid and small caps, biotech, diversified emerging markets, Chinese equities, and a short-term tactical allocation to technology stocks.  Other strong positive equity contributors in non-leveraged positions included exposure to diversified emerging markets, global growth, passive S&P 500 Index, mid cap growth and small cap quality strategies.  Exposures to global value, U.S. dividend growth, international small cap, multi-asset income and closed-end fund strategies were also positive contributors, but these areas generally lagged the other primary contributors in the quarter.

Positioning

Risk Assets

The Global Unconstrained strategy continues to utilize third-party managers to invest in a mix of U.S. and international equities and multi-asset income strategies. To pursue broad diversification, the strategy spans across market cap and investment styles, leaning toward companies exhibiting established fundamentals with demonstrated growth potential.

In the current environment, maintaining broad diversification and exposure to multi-asset income strategies remains the preferred approach. There is some caution on closed-end funds as narrow discounts relative to Net Asset Value (NAV), combined with their inherent leverage, appear less attractive while equity markets sit near all-time highs and credit spreads remain tight.

While the portfolio retains some leveraged equity positions, the allocation is currently near the bottom of its historical range. This existing leveraged exposure is targeted toward U.S. mid-caps, diversified emerging markets, and Chinese equities. Given that many sectors of the global equity market are trading near historical highs, the current preference is to keep overall leverage limited at this time. Should market pullbacks create potential opportunities, leveraged equity exposure may be increased at that time.

During the second quarter, global equity market volatility created opportunities for tactical adjustments within the portfolio’s leveraged positions. Following a first-quarter selloff in the technology sector, a leveraged technology sector position was initiated in late March. As technology swiftly rebounded in April, profits were captured by selling the position and were reallocated into an existing non-leveraged, U.S. large/mid cap higher-quality growth equity strategy.

As ongoing momentum in small caps resulted in a predetermined price target being achieved, a leveraged small-cap position was liquidated for profit in early May and reallocated to an existing non-leveraged, high-quality small-cap position. Biotechnology also experienced significant gains in Q2, hitting price targets twice in June. At the first trigger point, partial profits were taken and allocated to a global value manager, seeking to capitalize on the relative valuations of lagging value stocks. By the end of June, the remainder of the leveraged biotech position was sold and rotated into leveraged Chinese equities, an area that had underperformed broader global markets.

Broader tactical rebalancing was also executed in the quarter by trimming outperforming areas, such as leveraged emerging markets, and reallocating to other areas of the portfolio that had lagged.