- Standard & Poor’s 500 was up 3.82% during the quarter and up 11.96% in 2016.
- MSCI AC World ex US (international stocks) underperformed US stocks in the quarter by rising 1.30% and underperformed US stocks in 2016 by being up 8.48%.
- MSCI Emerging Markets Equities declined 4.16% for the quarter and increased by 11.19% in 2016.
- Barclays US Aggregate Bond underperformed stocks by dropping 2.98% during the quarter. The index rose 2.65% in 2016.
- Rogers International Commodities rose 3.75% for the quarter and was up 13.35% in 2016.
- Gold underperformed the broad commodity market with a 13.35% decrease in the quarter. It rose 8.10% in 2016.
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 0.12% loss while the Post-MPT Moderate Allocation declined by 3.05% for the quarter.
- In 2016, Post-MPT Growth was up 10.39% and Post-MPT Moderate rose by 7.05%. Post-MPT Growth and Post-MPT Moderate underperformed their benchmarks, the S&P 500 and the 60/40 stock/bond index, respectively, in 2016. (60/40 = 60% S&P 500 and 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 150 basis points annually since its 2005 inception with less drawdown. As demonstrated in early 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 financial holdings. Energy stocks significantly aided Post-MPT Growth, also. Long-Term Treasury Bonds contributed negatively to Post-MPT Growth’s and Post-MPT Moderate’s results last quarter.
- Both models continue to be positioned for a slow growing economy. Financial, technology and utilities sectors are large positions in both models. Post-MPT Growth is also overweighted in energy while Post-MPT Moderate has an above market Treasury Bond position. Post-MPT Growth has increased its holdings in utilities while financials have become a higher percentage in Post-MPT Moderate during the quarter. Treasury Bond holdings have declined in both models.
iSectors Liquid Alternatives Allocation
- The Liquid Alternatives Allocation declined 1.06% during the quarter and was up 8.63% in 2016.
- The portfolio’s allocations to precious metals and hedged commodity funds contributed the most to its negative returns while alternative equity and alternative fixed income funds helped performance during the quarter.
- The Liquid Alternatives Allocation has outperformed its hedge fund benchmark over the last 1, 3 and 5 years.
iSectors Endowment Allocation
- The Endowment Allocation lost 0.54% during the quarter and rose 9.70% in 2016.
- International fixed income and precious metals funds contributed significantly to the negative performance. As in the Liquid Alternatives Allocation, alternative equity and alternative fixed income funds helped the Allocation’s returns.
- The Endowment Allocation, with over 50 ETFs, mutual funds, and stock holdings, can serve as a broadly diversified, long-term core holding for clients with a moderate risk tolerance.
iSectors Global Allocations
- Quarterly returns for the Global Allocations ranged from -2.22% for Global Fixed Income to +0.86% for Global Equity.
- US dividend stocks were the greatest positive contributors in the quarter for the Global Equity Allocation.
- The Global Fixed Income Allocation was negatively impacted by mortgage-backed and international 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 2.26% for the quarter. Domestic Equity was the best performing iSectors model this quarter and in 2016. Over the past 12 months, the Domestic Equity Allocation was up 13.81%.
- Small-cap growth funds outperformed during the quarter while large cap growth stocks detracted from performance.
- Companies with long histories of consistently increasing dividend payments each consecutive year 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. The portfolio’s current dividend yield is 2.24%.
iSectors Domestic Fixed Income Allocation
- iSectors introduced the Domestic Fixed Income Allocation at the beginning of the fourth quarter. The Allocation invests exclusively in US fixed income securities through a selection of investment grade and high yield corporate ETFs laddered up to five years in maturity. The Allocation attempts to benefit from ETFs’ low investment expenses, transparency, liquidity and diversification compared to most actively-managed mutual fund and bond portfolios. The Allocation seeks to provide investors attractive current income while experiencing low interest rate volatility.
- The Domestic Fixed Income Allocation was up 0.06% for the quarter.
- Intermediate high yield funds outperformed during the quarter while intermediate investment grade funds detracted from performance.
iSectors Inflation Protection Allocation and iSectors Precious Metals Allocation
- The Inflation Protection Allocation declined 4.35% while the Precious Metals Allocation lost 14.69% during the quarter. In 2016, Inflation Protection was up 12.72% while Precious Metals rose 11.28%. Both underperformed the Rogers Commodity Index benchmark in 2016.
- Inflation Protection and Precious Metals’ gold and silver weightings were the primary contributor to their quarterly declines. Inflation Protection was helped by its broad commodity holdings.
- 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. The recent recovery in oil prices may be an initial indication that this process has begun. 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.
iSectors Capital Preservation Allocation
- The Capital Preservation Allocation was up 0.44% for the quarter and increased by 3.18% 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 2.0% 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.
iSectors Tactical Global Balanced Allocation
- The Tactical Global Balanced Allocation declined 2.68% during the quarter.
- Emerging market equity and gold holdings contributed negatively to results in the quarter. Small cap equity and broad commodity funds enhanced performance.
- The Tactical Global Balanced Allocation began raising cash in the quarter and is now only 40% invested. Currently, the Allocation has positions in US domestic and international developed market equities and broad commodity funds.
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.
(Contents not complete without disclosure)
iSectors® is a series of proprietary asset allocation models and services. iSectors, LLC is an affiliate of Sumnicht & Associates, LLC (Sumnicht) and, as such, iSectors and Sumnicht share certain employees’ services. iSectors became registered as an investment advisor in August 2008. iSectors allocation models are only available through registered investment advisors. iSectors® is a registered trademark of Sumnicht Holdings, LLC.
The contents of this presentation are for informational purposes only. Content should not be construed as financial or investment advice on any subject matter. This is neither an offer nor a solicitation to buy and/or sell securities. Information pertaining to iSectors’ advisory operations, services, and fees is set forth in its current disclosure statements (Form ADV, Part 2 Brochure), a copy of which is available upon request.
iSectors’ allocation models are not guaranteed and involve risk of loss. At any given point in time, the value of iSectors allocation model portfolios may be worth more or less than the amount invested. Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investments and/or investment strategies devised or undertaken by iSectors) will be either suitable or profitable for a client’s or prospective client’s portfolio.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance will be profitable, or equal either the performance results reflected or any corresponding historical index. Asset allocation and diversification concepts do not ensure a profit nor protect against loss in a declining market.
The historical benchmark index performance results are provided exclusively for comparison purposes to assist an individual client or prospective client in determining whether the performance of a specific investment meets, or continues to meet, investment objective(s). It should not be assumed that any account holdings will correspond directly to any comparative index. Index performance results do not reflect the impact of taxes. Indexes are not available for direct investment. Index performance results are compiled directly by each respective index and/or obtained by iSectors from other reliable sources, and have not been independently verified by iSectors.
iSectors models are based on index ETFs that can neither outperform nor underperform their index. We provide benchmark indexes that are well known for comparison purposes only.
Composite performance results reflect the reinvestment of dividends and other account earnings and do not reflect the impact of taxes. Composite performance results provided are gross of all management, platform, advisory and custodial fees. iSectors investment allocation models are only available through registered investment advisors, who will charge an additional fee for their advisory services. For information about the fees that pertain to your clients’ accounts, check with your platform provider. For reasons including platform provider and custodian utilized, as well as variances in portfolio account holdings, market fluctuation, the date on which a client engaged iSectors’ services, regular model rebalancing and/or updates, and timing of account contributions and withdrawals, the underlying fees of a specific client’s account may vary. ERISA (group retirement) accounts may be subject to additional recordkeeping and/or administrative fees.
This information is marketed to investment professionals. iSectors®, LLC has managed these 14 allocations since the firm’s inception in 2008. Previously, Sumnicht & Associates, LLC (Sumnicht), an affiliated company, managed the allocations. Sumnicht is a provider of investment management services for institutional, family office and individual clients. Sumnicht claims compliance with the Global Investment Performance Standards (GIPS®). Sumnicht claims that the allocations are GIPS compliant since each allocation’s respective inception dates and have been GIPS verified from 1/1/2008 to 12/31/2015, as of the verification date of 7/12/2016. The allocation composites include both institutional and individual client accounts whereby iSectors has sole portfolio discretion with investment objectives matching that of each specific allocation. Performance in this publication is shown in US dollars, gross of fees, including the reinvestment of dividends and do not reflect the impact of taxes. Returns will be reduced by investment manager, platform, custodial, trading and advisory fees, if applicable. Past performance is not indicative of future results. To obtain a compliant presentation and a list and description of the firm’s composites, please contact Chuck Self, CIO, at (920) 257-5168 or [email protected].
You should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from an investment professional.
This presentation has not been reviewed, submitted for review before, or otherwise approved by FINRA, the SEC or any state or provincial securities administrator.
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