A Balanced Approach in Retirement
A Balanced Approach in RetirementMulti-Asset and Alternatives
A Balanced Approach in Retirement
Jeremiah Buckley: The balanced portfolio is a U.S.-centric portfolio with a mix of both equities and fixed income. Historically the range within the equities within the asset allocation has been 35 to 65%, 35 being the low end when we’re very bearish on the market, and 65 being the high end where we’re more bullish on the market. The more normal range for the equities would be 50 to 65% with around 60% being neutral. We like to talk about the portfolio as a collection of straightforward securities where we focus on just pure equities and a range of fixed income securities. We will not invest in other mutual funds or ETFs, commodities or derivatives.
We think the type of investor that might be interested in the balanced portfolio would be somebody who would like a little smoother ride over time, that would like a little less volatility around market volatility. We think both the preservation of capital, as well as the growth of capital, is very important and focus on both. We think that our ability to have dynamic asset allocation gives us the flexibility to position the portfolio differently depending on the market environment. When we are concerned about the potential returns in the market, we can be more conservative and then shift that weighting back to fixed income or when we are optimistic about equity markets we can shift that up to our higher level and focus on capital appreciation.
So as investors near retirement we think it’s very important for them to focus on both the preservation of capital and the potential for growth in their capital. We believe that the balanced portfolio provides a good combination of current income, both from the fixed income part of the portfolio, plus the dividends that we’re getting from the equity portion of the portfolio, plus the potential for growth over time from the equity portfolio.
I think the best example of the asset allocation process at work was the environment that we experienced in 2008 where we substantially lowered the equity weighting within the portfolio as we became very concerned about some of the trends within the market and some of the liquidity issues that the fixed income team was seeing at the time. That allowed us to have performance within the balanced portfolio substantially less than the S&P decline in 2008. We were also able to offset that and make up that capital loss.
We continue to believe that there is potential that interest rates will continue to rise. Although we believe that will be driven by strong economic growth and supported by that growth. As a result of that we’ve positioned with a higher equity weighting than our neutral stance, closer to a bullish stance on our equity weighting. We believe within the equity portfolio we are positioned for those higher rates as well by having exposure to capital market companies as well as companies like industrials that will benefit from the increased economic activity. We’re also extremely focused on balance sheets. We like to focus on companies with what we call investment grade balance sheets where if interest rates do continue to rise we don’t have to worry about that as well.
So we think the key differentiators of our balance portfolio are a handful. One would be the focus on security selection, both the fixed income and the equity sleeves are both actively managed, focused on deep company research, trying to find the best securities within those asset groups that can drive capital appreciation and income over time. We believe that the integration of our team, both the integration of the fixed income team and the equity team, is a very important part and helps us drive that dynamic asset allocation decision. Whereas you see a lot of peers would have a static asset allocation, but we meet on a regular basis and compare opportunities within both the fixed income and the equity markets to compare opportunities to adjust that asset allocation and fill the portfolio with securities that we’re excited about. I would say that the last thing is that the portfolio is made up of simple and transparent securities. We’ll own just equities and fixed income securities. We won’t own commodities or ETFs.
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The opinions and views expressed are as of 11/01/18 and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.
Performance may be affected by risks that include those associated with non-diversification, portfolio turnover, short sales, potential conflicts of interest, foreign and emerging markets, initial public offerings (IPOs), high-yield and high-risk securities, undervalued, overlooked and smaller capitalization companies, real estate related securities including Real Estate Investment Trusts (REITs), derivatives, and commodity-linked investments. Each product has different risks. Please see the prospectus for more information about risks, holdings and other details.
Investing involves risk, including the possible loss of principal and fluctuation of value.
Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets.
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This dynamic asset allocation strategy has the flexibility to defensively position ahead of market volatility while seeking strong risk-adjusted returns. The Fund’s asset allocations may vary between 35% and 65% equities depending on market conditions. As investors near retirement, we think it’s important to focus on both the preservation of capital and the potential for growth when investing.