Although US stocks rebounded in 2015’s final quarter, most other asset classes were flat or down. As a whole, 2015 was unusual in that there were not major asset classes with results greater than 4% for the year. The iSectors aggressive tactical allocation, liquid alternative strategy, Post-MPT Growth continues to post attractive long-term outcomes. The Liquid Alternatives Allocation, iSectors strategic diversification alternative, has outperformed hedged funds over its six year life. Historical returns for and commentaries on all 14 iSectors strategic and tactical portfolios are presented below.
- Standard & Poor’s 500 was up 7.04% during the quarter and up 1.38% over the past 12 months.
- MSCI AC World ex US (international stocks) underperformed US stocks in the quarter by rising 3.30% and is down 5.25% over the past 12 months.
- MSCI Emerging Markets Equities rose 0.26% for the quarter and dropped 16.96% over the past 12 months.
- Barclays US Aggregate Bond underperformed stocks by being down 0.57% during the quarter. The index rose 0.55% over the past 12 months.
- Rogers International Commodities declined 11.17% for the quarter and was down 26.08% over the past 12 months.
- Gold outperformed the broad commodity market with a 4.85% decline in the quarter. It had declined 10.20% over the past 12 months.
iSectors Allocation Model Commentary
iSectors Post-MPT Allocations
- The Post-MPT Allocations underperformed their respective benchmarks in the quarter. The Post-MPT Growth Allocation had a 4.00% gain while the Post-MPT Moderate Allocation rose by 1.72% for the quarter.
- Over the past 12 months, Post-MPT Growth was down 4.19% and Post-MPT Moderate declined by 3.42%. Both have underperformed 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 ten years of real-time performance, Post-MPT Growth has outperformed the S&P 500 by over 170 basis points annually since its 2005 inception with less drawdown. Historically, as market gains moderate, Post-MPT Growth has outperformed equities 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 Technology and Financial holdings. US Treasury bonds and Energy contributed negatively to both models’ performance last quarter.
- Both models continue to be positioned conservatively. Post-MPT Growth has become almost completely deleveraged. Long-Term Treasury Bonds, Financials, and Technology have become the largest positions in both models. Post-MPT Growth has increased its Real Estate equity holding while Post-MPT Moderate has added a meaningful Utilities position. Gold stock and energy holdings have declined in both models.
iSectors Liquid Alternatives Allocation
- The Liquid Alternatives Allocation rose 0.14% during the quarter and was down 7.60% over the past 12 months.
- The portfolio’s sector allocations to timber and globally listed private equity contributed the most to the positive returns while broad commodities and energy, in particular, hurt performance during the quarter.
- The Liquid Alternatives Allocation continues to outperform its hedge fund benchmark over the last 5 years.
iSectors Endowment Allocation
- The Endowment Allocation gained 0.94% during the quarter and lost 6.31% during the past 12 months.
- Since Liquid Alternatives comprises 60% of the Endowment model, globally listed private equity contributed significantly to the positive performance. Growth stock holdings also helped quarterly returns. As in the Liquid Alternatives Allocation, energy hurt the Allocation’s returns.
- The Endowment Allocation, with over 50 security holdings, can serve as a broadly diversified, long-term core holding for clients with a moderate risk tolerance.
iSectors Global Allocation
- Quarterly returns for the Global Allocation ranged from -0.68% for Global Fixed Income to +4.16% for Global Equity.
- US dividend stocks were the best performing sector in the quarter for the Global Equity Allocation.
- The Global Fixed Income Allocation was hurt by high yield bond holdings while being helped by Treasury Inflation Protected Securities and floating rate 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.
iSectors Domestic Equity Allocation
- The Domestic Equity Allocation was up 5.54% for the quarter, underperforming the S&P 500.
- Large cap funds outperformed during the quarter while mid and small cap growth stocks detracted from performance.
- Companies with long histories of consistently increasing dividend payments and less volatile stock prices should receive demand by investors in these uncertain times. The fundamentally weighted, Domestic Equity Allocation focuses on these types of investments.
iSectors Inflation Protection Allocation and iSectors Precious Metals Allocation
- Both allocations suffered downdrafts in the fourth quarter. The Inflation Protection Allocation lost 3.25% while the Precious Metals Allocation dropped 6.09% during the quarter. For the past 12 months, Inflation Protection was down 13.16% while Precious Metals declined 16.43%. Both outperformed the Rogers Commodity Index benchmark during the past 12 months.
- The Precious Metals’ silver and palladium weightings were the primary contributors to its quarterly decline. Inflation Protection was hurt by its broad commodity and energy sector exposures but was helped by its real estate and timber holdings.
- Although the drop in energy prices 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, especially at their currently depressed security prices.
iSectors Capital Preservation Allocation
- The Capital Preservation Allocation was up 0.11% for the quarter and down 0.67% 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 2.4% with an effective duration of 1.1 years and an average investment grade rating.
- The Capital Preservation Allocation offers a cash alternative with the potential for enhanced returns while maintaining liquidity in the current low interest rate environment.
iSectors Tactical Global Balanced Allocation
- The Tactical Global Balanced Allocation declined 0.05% during the quarter.
- The Allocation is 14% allocated to real estate stocks with the remaining balance invested in cash equivalents.
All model returns presented gross of fees. Index comparisons provided for information purposes. You cannot invest directly in an index.
This commentary is not complete without our disclosures.