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 rallied in Q2 as U.S. equity and credit-sensitive bond markets rebounded from their decline in Q1. Exposures to U.S. large and mid cap growth stocks were the strongest contributors to the strategies in the quarter. The strategies’ allocation to dividend growth, valuation-oriented and small cap equity strategies also positively contributed in the quarter, albeit less than growth stocks in Q2.
In the U.S. Core strategies’ taxable bond allocation, our overweight to actively-managed bond managers continued to add value in Q2 as their general overweight to credit-sensitive bonds was rewarded as credit rallied. Across the U.S. Core Muni strategies, our allocation to credit-sensitive muni bond managers was not as supportive as their taxable bond manager counterparts, as the muni managers’ positioning generally underperformed in Q2.
Positioning
Risk Assets
The U.S. Core strategies maintain broad exposure to U.S. equities through a blend of market cap-weighted index, fundamentally-weighted index, and actively-managed strategies. We emphasize diversification across investment styles and company sizes, with a preference for investment strategies focusing on higher-quality businesses demonstrating consistent growth potential.
Conservative Assets
On the fixed income side, the U.S. Core strategies remain allocated to a mix of traditional core investment-grade bond strategies and more flexible, opportunistic bond strategies. We continue to favor core bonds for their potential to provide downside protection during equity market stress. At the same time, we maintain exposure to tactical bond managers who can selectively increase credit exposure when credit markets decline, and valuations improve.
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 are managed across Ultra-Conservative through Aggressive risk profiles.
Performance Review
The Income strategies continued to perform well as equity-related and credit-sensitive income-generating assets rallied in Q2. Dedicated exposure to international dividend growth companies was the strongest contributor in the quarter as international equities continued to show strength this year. Exposure to multi-asset income strategies, including tactical income and closed-end funds, also positively contributed in the quarter. Other positive contributors in Q2 included option-income, U.S. dividend growth, mid cap dividend-paying companies and global real estate income strategies.
Across the strategies’ fixed income allocation, tactical credit-sensitive bond managers generally outperformed as riskier parts of the bond markets rebounded from early-quarter lows.
For our Income – Ultra-Conservative portfolio, allocation to active bond managers was a solid contributor to overall performance in Q2. Exposure to core, tactical bond managers was the strongest contributor in Q2 as their higher income-generation was a benefit to performance. Our exposure to short-term credit-sensitive bond managers also positively contributed in Q2.
Positioning
Risk Assets
The Income strategies continue to emphasize investments that offer higher income potential. This includes exposure to strategies centered on dividend growers, high-yielding equities, option-based income, tactical yield opportunities, closed-end fund structures, and global real estate income. We believe this diversified mix supports strong income generation while also allowing for the possibility of capital growth over time.
Conservative Assets
The strategies remain allocated to income-oriented, credit-driven fixed income strategies. Our preference is for both core and tactical bond managers with the flexibility to actively adjust credit exposure in response to changing market dynamics. We also maintain diversification across short- and intermediate-duration bonds to help manage interest rate sensitivity and broaden our fixed income exposure.
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 are managed across Conservative through Aggressive risk profiles.
Performance Review
The Total Return strategies performed well in Q2 as U.S. and international equities and bonds rallied. Equity strength appeared in several areas during the quarter, including international small caps, U.S. large and mid cap growth companies, emerging markets, international high-quality companies, and actively-managed global equity strategies. The strategies’ exposure to tactical multi-asset income and closed-end fund strategies also positively contributed in the quarter.
In the Total Return taxable bond allocation, our allocation to fundamentally-driven, credit-sensitive bond managers added value in Q2 as credit rebounded following the decline in Q1. In the Total Return Muni bond allocations, performance was a bit different than the taxable bond allocation. Within munis, intermediate-term higher quality bonds generally outperformed, while credit-sensitive, longer-duration munis underperformed. In this environment, our fundamentally-driven muni bond manager allocations detracted relative to core muni bond markets in Q2.
Positioning
Risk Assets
The Total Return strategies retain a broad mix of U.S. and international equity exposure, complemented by allocations to income-oriented investments. Our equity exposure spans a range of management styles, market capitalizations, and global regions to ensure broad diversification. On the income side, we emphasize multi-asset income strategies that provide diversified exposure across dividend-focused stocks, credit-driven bonds, option-based income, and closed-end funds. Our portfolio construction draws from a combination of actively-managed and index-based strategies to provide opportunities to add value while managing investment expenses.
Conservative Assets
Within fixed income, the strategies remain allocated to actively managed bond strategies. We maintain a balance between core, high-quality investment grade managers and more flexible, tactical bond strategies with the ability to adapt to shifting market conditions. We believe these managers bring the expertise and adaptability needed to navigate a dynamic fixed income landscape.
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 rallied in Q2 as U.S. equities rebounded strongly from their decline in Q1. Our increased exposure to leveraged equity positions across market cap during the decline in March and April greatly benefited the strategy as equities rallied from their lows. The strategy’s exposures to large and mid cap growth stocks were strong contributors in the quarter as investors returned to growth stocks and artificial intelligence-related companies. Our exposures to valuation-sensitive, dividend growth and small caps were positive contributors in Q2, but these positions generally lagged other positions in the quarter.
Positioning
Risk Assets
Throughout the volatility in Q1, we were tactically adjusting our leveraged equity exposure in the U.S. Core X strategy. As U.S. equities continued to decline to deeper levels, we added leveraged exposure to large, mid and small caps. In the depths of the decline in early April, we increased our leveraged exposure to small caps even more as the Russell 2000 index outpaced large and mid caps to the downside. Following President Trump’s 90-day pause on his tariff plan, U.S. equities rebounded strongly. In May, following the sharp rebound in small caps, we reduced our position in leveraged small caps. As the S&P 500 and NASDAQ 100 rebounded back to their highs, we reduced our leveraged exposure to these indices as well. At this time, we maintain slightly overweight leveraged positions to large, mid and small caps in the U.S. Core X strategy.
Across our core, non-leveraged positions, the U.S. Core X strategy remains diversified across market cap and investment style (growth, core, value). We continue to prefer an allocation mix of lower-cost, market cap-weighted index, fundamentally-driven index and actively-managed equity strategies to provide our desired exposure to U.S. equities.
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 performed well in Q2 as global equity and credit markets rallied. The strategy benefited from increasing exposure to leveraged positions as equity markets declined, then subsequently started taking profits as equities rallied. Strong performance came from leveraged positions across market cap, emerging markets, and dedicated exposure to the semiconductor sector. For our non-leveraged core positions, strong contributors to performance included international small caps, emerging markets, large and mid cap growth stocks and global equity managers. Exposure to higher-quality small caps and large cap dividend growth companies also positively contributed in Q2. Dedicated exposures to multi-asset income and closed-end funds were also solid contributors to performance in the quarter.
Positioning
Risk Assets
The Global Unconstrained strategy was very tactical in Q2. As equity markets declined in March and April, we increased exposure to leveraged equities, including exposure across U.S. market caps and to dedicated positions in semiconductors and biotech sectors. As equity markets rallied from early April through the end of the quarter, we reduced leveraged exposure to semiconductors, the S&P 500 Index and the NASDAQ 100 Index. We maintain our leveraged positions across U.S. mid and small caps, diversified emerging markets, and specific exposures to China, semiconductors and biotech. Our largest leveraged overweight is to the biotech sector at this time. If equity markets can continue to grind higher from here, we would anticipate continuing to reduce our exposure to leveraged equities.
Across our core, non-leveraged positions, we remain diversified across market cap, investment styles (growth, core, value) and geography. We prefer a mix of passive index, fundamentally-driven index and actively-managed strategies, with a preference for investing in higher-quality, growing companies. We also continue to allocate to multi-asset income strategies, with exposure to tactical income and diversified closed-end fund managers to generate additional income for the Global Unconstrained strategy.