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 were supported by gains in U.S. equities and bonds during Q3. Dedicated exposure to higher quality small cap company stocks was among the most significant contributors during the quarter. Exposure to the passive S&P 500 Index, higher quality growth and dividend growth strategies were also strong contributors in the quarter. Our exposure to mid cap stocks was a positive contribution, but mid caps generally underperformed large and small cap stocks in Q3. Exposure to value stocks was somewhat mixed in the quarter.
In the U.S. Core strategies’ taxable bond allocation, our exposure to actively managed bond strategies was a positive contributor as these managers’ overweights to credit-sensitive bonds were rewarded as riskier bonds outperformed. In our U.S. Core Muni bond allocations, bond managers’ underweight to duration was a bit of a drag on the quarter as interest rate-sensitive bonds generally outperformed.
Positioning
Risk Assets
The U.S. Core strategies provide broad U.S. equity exposure through a combination of market cap-weighted indices, fundamentally weighted indices, and actively managed strategies. Our approach emphasizes diversification across both investment styles and company sizes, with a focus on higher-quality businesses that exhibit consistent growth potential.
Conservative Assets
The U.S. Core strategies hold a combination of traditional core investment grade bond strategies and more opportunistic, flexible strategies. Core bonds are emphasized in the strategies for their potential to offer downside protection during periods of equity market stress. We allocate to tactical bond managers that are intended to provide flexibility and may create opportunities during periods of market dislocation.
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 benefited from favorable market conditions in Q3 as global equity and bond markets rallied. U.S. large and mid cap dividend strategies were the strongest contributors in the quarter as U.S. equities generally outperformed. Exposure to international dividend growth stocks also positively contributed, but foreign developed equities underperformed the U.S. in the quarter. Exposure to option-income equity strategies was also additive in the quarter. Allocations to multi-asset tactical income, closed-end fund, and global real estate income strategies contributed positively during the quarter.
Across the strategies’ fixed income allocation, our exposure to credit-sensitive bond managers was beneficial as credit risk was rewarded in the quarter. Our exposure to a short-term, credit-sensitive bond manager was a positive, but its structural underweight to duration dragged on the strategies as interest rate-sensitive bonds generally outperformed in Q3.
For our Income – Ultra-Conservative strategy, our positioning across credit-sensitive, tactical bond managers was a positive as these strategies generally outperformed core, investment grade bond indices. A structural underweight to duration was a drag on the strategies relative to core, intermediate-term bond indices. The strategy’s structural lack of equity exposure held the strategy back relative to other conservative strategies with exposure to equities, as would be expected when equities outperform bonds.
Positioning
Risk Assets
The Income strategies primarily invest in assets and strategies designed to deliver higher income. The strategies are allocated across global dividend growth and high-dividend paying equities, option-based income managers, tactical income strategies, closed-end funds, and global real estate income. By combining these diverse sources of higher income-generating strategies, the Income strategies seek to provide higher levels of income while maintaining exposure to long-term capital appreciation opportunities.
Conservative Assets
The Income strategies continue to hold fixed income strategies with a focus on income generation through an overweight to credit exposure. We favor a mix of core and tactical managers that can actively shift credit exposure as market conditions evolve. To balance risks, the allocation is diversified across short- and intermediate-term bonds, which helps limit interest rate sensitivity while expanding the breadth of 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 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 were supported by strong markets in Q3, as global equities, multi-asset income strategies, and bonds advanced. Our exposure to U.S. large and small cap equities was beneficial as these areas outperformed in Q3. Exposure to U.S. mid cap growth stocks was a positive, but this position lagged other areas of the U.S. equity market in the quarter. Dedicated exposures to international small caps and emerging markets were also strong positive contributors in Q3. Our allocations to higher quality companies in foreign developed markets and active global equity managers were positive contributors in the quarter, but these exposures generally underperformed U.S. large cap equities in the quarter. Exposures to multi-asset income and closed-end fund strategies added to results, although they underperformed pure global equity exposure during the quarter.
In the Total Return taxable bond allocation, our exposure to actively managed bond strategies added value as these managers’ overweights to credit-sensitive bonds were rewarded during the risk-on rally in Q3. In the Total Return Muni bond manager allocations, the managers’ overweight to credit was roughly neutral for performance, but their aggregate underweight to duration dragged on performance as interest rate-sensitive munis generally outperformed.
Positioning
Risk Assets
The Total Return strategies maintain a diversified blend of U.S. and international equities alongside income-generating investments. Equity exposure is distributed across U.S. and international regions, market cap and investment styles to promote broad diversification. Income allocations focus on multi-asset strategies, blending dividend-paying equities, credit-sensitive bonds, option-based income, and closed-end funds across our positions. To balance cost efficiency with the potential for added value, the strategies draw on a mix of active managers and index-based strategies.
Conservative Assets
The Total Return strategies continue to invest in actively managed fixed income strategies. We balance allocations between core, high-quality investment grade managers and more flexible, tactical bond approaches that can adjust to changing market conditions. We believe this combination offers the expertise and adaptability necessary to navigate an evolving fixed income environment.
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.