The iSectors®, LLC 2nd Quarter 2016 Summary Commentary
Posted on: 07/19/2016
- Standard & Poor’s 500 was up 2.46% during the quarter and up 3.99% over the past 12 months.
- MSCI AC World ex US (international stocks) underperformed US stocks in the quarter by dropping 4.24% and is down 11.97% over the past 12 months.
- MSCI Emerging Markets Equities rose 0.66% for the quarter and dropped 12.05% over the past 12 months.
- Barclays US Aggregate Bond slightly underperformed stocks by being up 2.21% during the quarter. The index rose 6.00% over the past 12 months.
- Rogers International Commodities increased 11.87% for the quarter and was down 15.36% over the past 12 months.
- Gold underperformed the broad commodity market with a 6.77% increase in the quarter. It has risen 12.79% over the past 12 months.
iSectors Allocation Model Commentary
- The Post-MPT Allocations outperformed their respective benchmarks handily in the quarter. The Post-MPT Growth Allocation had a 7.84% gain while the Post-MPT Moderate Allocation rose by 6.19% for the quarter.
- Over the past 12 months, Post-MPT Growth was up 7.33% and Post-MPT Moderate rose by 6.91%. Both have outperformed their benchmarks, the S&P 500 and 60/40 stock/bond indices, respectively, over that past 12 months. (60/40 = 60% S&P 500 + 40% Barclays US Aggregate Bond Index.)
- With more than eleven years of real-time performance, Post-MPT Growth has outperformed the S&P 500 by over 200 basis points annually since its 2005 inception with less drawdown. As demonstrated in the first half of 2016, Post-MPT Growth has outperformed equities during flat to negative markets due to the model’s ability to change its exposure within a universe of low correlated asset classes and flexibility to own more conservative asset classes when market conditions are unfavorable.
- During the quarter, Post-MPT Growth and Moderate were positively impacted by their US Treasury bond holdings. Gold stocks significantly aided Post-MPT Growth, also. Technology stocks contributed negatively to both models’ results last quarter.
- Both models continue to be positioned conservatively. Long-Term Treasury Bonds and utilities are the largest positions in both models. Real estate, gold, and energy have increased their weightings in Post-MPT Growth during the quarter. Technology holdings have declined in both models.
- The Liquid Alternatives Allocation rose 4.78% during the quarter and was down 0.70% over the past 12 months.
- The portfolio’s sector allocations to commodities, especially gold securities and energy funds contributed the most to the positive returns while market neutral and merger arbitrage funds hurt performance during the quarter.
- The Liquid Alternatives Allocation has outperformed its hedge fund benchmark over the last 1, 3 and 5 years.
- The Endowment Allocation gained 2.92% during the quarter and lost 4.60% during the past 12 months.
- Since Liquid Alternatives comprises 60% of the Endowment model, gold and energy funds contributed significantly to the positive performance. As in the Liquid Alternatives Allocation, market neutral and merger arbitrage funds hurt the Allocation’s returns.
- The Endowment Allocation, with over 50 ETFs, mutual funds, or stock holdings, can serve as a broadly diversified, long-term core holding for clients with a moderate risk tolerance.
- Quarterly returns for the Global Allocations ranged from +0.79% for Global Fixed Income to +3.37% for Global Equity.
- US dividend stocks were the greatest positive contributor in the quarter for the Global Equity Allocation.
- The Global Fixed Income Allocation was positively impacted by mortgage-backed and high yield corporate bonds.
- The Global Allocations are a series of diversified, risk-based models, with a fundamentally weighted, equity dividend focus that can serve as an ideal core-menu of default investment options for a 401(k) plan.
- The Domestic Equity Allocation was up 4.07% for the quarter, outperforming the S&P 500. Over the past 12 months, the Domestic Equity Allocation was up 9.88%.
- Large-cap dividend funds outperformed during the quarter while large- and mid-cap growth stocks detracted from performance.
- Companies with long histories of consistently increasing dividend payments and less volatile stock prices are seeing demand by investors in these uncertain times. The fundamentally weighted, Domestic Equity Allocation focuses on these types of investments.
- Both allocations soared in the second quarter. The Inflation Protection Allocation gained 8.46% while the Precious Metals Allocation rose 11.38% during the quarter. For the past 12 months, Inflation Protection was up 4.14% while Precious Metals rose 10.70%. Both significantly outperformed the Rogers Commodity Index benchmark during the past 12 months.
- The Precious Metals’ gold weighting was the primary contributor to its quarterly increase. Inflation Protection was also helped by its precious metal exposures and commodity funds, in general, but was hurt by its international real estate and timber holdings.
- Although the drop in energy prices over the past 18 months will delay the onset of inflation, easy money policies currently being promoted by Central Banks around the world will have serious long-term inflationary effects on our economy. We believe inflation and higher interest rates will be the greatest risk factors investors will face over the next 20 years. Investors would be wise to place a portion of their portfolios in inflation-protected assets, particularly precious metals, to hedge against the possibility of inflation.
- The Capital Preservation Allocation was up 0.94% for the quarter and increased by 0.96% over the past 12 months. The model has outperformed the Barclays 1-3 Year Government Bond benchmark over the past 5 years.
- The Capital Preservation Allocation has a yield to maturity of 1.8% with an effective duration of 1.0 years and an average investment grade rating.
- The Capital Preservation Allocation offers a cash alternative with short durations to preserve investment principal in the case of an economic environment characterized by rising interest rates. It also provides the potential for enhanced returns while maintaining liquidity in the current low interest rate environment.
- The Tactical Global Balanced Allocation rose 3.06% during the quarter.
- Gold and real estate holdings contributed positively to results in the quarter. International developed market funds detracted from performance.
- The Allocation has added commodity, domestic small cap and real estate funds in recent months to existing investments in bonds, domestic large cap stocks, emerging markets equities, and gold. The Allocation is fully invested at the current time.
All model returns presented gross of fees. Index comparisons provided for information purposes. You cannot invest directly in an index, only in index funds that charge fees.
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