The Columbia Management Asset Allocation Team meets to review global economic investment conditions and markets. Team members discuss and evaluate the relative attractiveness of equities, fixed-income and alternative investments within various sectors, investment styles, markets and countries. The consensus opinion of the team is published quarterly in the Investment Strategy Outlook.
Q2 2012
Global overview: A fragile global economy Concerns around the health of the global economy were centered in news headlines focusing on Washington D.C., Europe, China and the Middle East. In the U.S., economic indicators remained mixed but generally indicate support for slow, sustainable economic growth. European policymakers have made progress in containing the debt crisis, though they still have not solved the issue of longterm solvency. The European Central Bank has lowered interest rates and flooded the financial system with liquidity that provides breathing space for companies to restructure balance sheets. These massive infusions of liquidity whet the appetite for risk from investors around the world. However, it also delayed a true reckoning with the European financial situation, as concerns about Spain and Portugal continue to cloud the outlook. These structural challenges that persist in the developed world, and slowing growth in emerging market economies, leave the global economy in a fragile state.
Yet, despite a more modest pace of growth, emerging markets remain solidly positive. Domestic demand and slowing inflationary trends have also helped to shore up emerging market economies. Joblessness remains low and monetary conditions remain easy.
Market overview
Stocks rally around the world
A stock market rally that commenced in the fourth quarter of 2011 continued into 2012 in the U.S. and around the world, as all major market regions generated double-digit returns. Volatility declined sharply as Europe debt fears quieted and sentiment improved. The rally in U.S. equities was largely driven by an expansion in "multiples"β an increase in stock prices relative to their earnings. By the end of the quarter, stocks no longer appeared as cheap as they were late in 2011. Earnings estimates for 2012 have come down, and we continue to advocate caution in the period ahead. Valuations continue to favor U.S. largecap stocks over small-cap stocks. Historically, investors tend to favor large company stocks in the face of sluggish economic growth and low interest rates.
The broad-based S&P 500 Index gained 12.6% for the first quarter, with dividends reinvested. Mid-cap stocks outperformed large- and small-cap stocks, but the advantage was slight. Growth stocks generally outperformed value stocks, all as measured by their respective Russell indices.
Financial stocks reversed course. Financials was the worst performing sector in 2011 and the best performing sector in the first quarter of 2012. Information technology stocks soared on improved economic data. Nine of 10 S&P industry sectors logged gains for the quarter. Utility stocks were the weakest performers, declining 1.62%. Telecommunication services followed with a gain of just 2.08%.
Stock markets outside the United States also generated solid returns for the quarter. The MSCI EAFE Index, a broad measure of stock market returns in developed countries, gained 10.86%; EAFE returns were buoyed by strong returns in Germany, Belgium, Austria and the Nordic markets of Denmark, Finland, Norway and Sweden. Under the cloud of its own mounting debt problem, Spain was the only eurozone country to deliver a negative return.
Japan's stock market rose 10.16% in U.S. dollar terms. For local currency returns, however, Japan gained 17.82%, buoyed by weakness in the Japanese yen. Solid economic growth and accommodative monetary policy helped boost emerging stock market gains. The MSCI Emerging Markets Index rose 14.07%, led by the emerging markets of Europe, the Middle East and Latin America. China lagged most other developed and emerging markets on fears of a sharp slowdown in growth.
Risk on for fixed-income investors Bonds lagged stocks during the first quarter as investors responded to signs of an improved environment with a greater appetite for risk.
Risk on for fixed-income investors (continued) After a year of strong returns, Treasuries and TIPS reversed course. Treasuries, in fact, delivered negative returns as yields rose across the curve during the first quarter. The yield on the two-year Treasury rose by 8 basis points (a basis point is one hundredth of a percent), while the five-year Treasury rose 20 basis points and the 10-year rose 33 basis points to 2.22% at the end of the quarter. Historically, yields tend to rise in March for a variety of reasons. Japanese investors have been big buyers of U.S. bonds, and March is the end of the fiscal year in Japan. New issuance early in the year takes time to be digested, pressuring yields in the process. In the first quarter, jobs numbers also tend to be higher because of seasonal factors, which start to run out of gas in the second quarter.
Aside from Treasuries, most investment-grade sectors of the fixed-income markets generated returns between 0.50% and 3.00%. The Barclays Aggregate Bond Index, a broad measure of investment grade government and corporate bonds, returned 0.30% for the quarter. Riskier sectors fared much better. The high-yield sector gained 5.05%, as measured by the Bank of America/Merrill Lynch High Yield Cash Pay Bond Index. The lowest quality rung of the high-yield bond market (bonds rated CCC) was up almost 10%. Fundamental improvements in company balance sheets, reduced leverage and ample liquidity imply that high-yield and investment-grade corporate bonds have the potential to continue to provide attractive returns going forward, absent another growth score or are-ups in the European sovereign debt crisis. Emerging market bonds were also solid performers, with a 4.86% gain, as measured by the JP Morgan Emerging Market Bond Index. Mixed results from alternative asset classes Broad commodities index returns lagged equities despite a sharp rise in the price of oil and a moderate increase in the price of gold. Declining natural gas prices and modest gains in the prices of agricultural commodities kept a lid on the overall index. By contrast, convertible securities rebounded strongly after a weak fourth quarter. The Bank of America/Merrill Lynch All U.S. Convertibles Index gained 10.22% during the quarter. Improved economic data helped buoy real estate investment trusts to another strong quarter. The FTSE NAREIT All Equity REIT Index returned 10.79%.
U.S. Economic Outlook
A cautious optimism
First quarter data was mixed, but it generally indicated support for slow, sustainable economic growth. Employment data was strong in the first two months of the period, but the March report of 120,000 new jobs fell considerably short of the two previous months. The slowdown in job growth is consistent with our assessment that seasonal adjustment factors may be overstating strength in a number of key areas, labor among them. Mild weather also worked in favor of the U.S. economy, minimizing the bite of higher energy prices on home heating oil and providing a boost to consumer spending. Credit conditions have eased, and housing has rounded the corner, even though its contribution to economic growth will be small. Personal consumption expenditures, a measure of spending on and consumption of consumer goods and services and the main driver of gross domestic product (GDP) growth, is behind where it should be at this point in the economic cycle. Expectations for 2012 economic growth, which were low at the beginning of the period, have caught up to the current data, making it more dif cult to beat expectations going forward. The next few months will test the resiliency of the economy as seasonal support factors recede and fiscal austerity begins to weigh on households.
Spending continued to hold up well in the first quarter, despite only a modest increase in real personal income. Core retail sales, the proxy for personal consumption expenditures, increased on the order of 5% (annualized) or just over 2% adjusted for inflation. Automobile sales, which do not feed directly into GDP, were encouragingly strong. In a worrisome development, the personal savings rate ended the quarter at a cycle low of 3.7%, as inflation took a bigger bite out of consumer pocketbooks. Disposable income growth has remained weak and consumers appear to be feeding their spending habits in some part by drawing down savings. Household net worth did, however, receive a big pop from the rising equity markets. As you can see from the chart above, equities accounted for most of the increase in household net worth in the first quarter.
The generally favorable mood of the markets and the economy lifted consumer confidence in the first two months of the period. However, it has not risen above its recession level; after February's sharp rise, the March figure came down somewhat.
Solid job growth During the rst quarter of 2012, the U.S. labor markets added approximately 635,000 new jobs. However, net job creation in March registered a disappointing 120,000 β far short of the 200,000+ gains for December, January and February. And a drop in the unemployment rate to 8.2% left nothing to cheer about, since it was largely the result of a further drop in the labor-force participation rate β a measure of the people actively employed and those actively looking for jobs, which excludes those who might have dropped out of the labor force, often because they are discouraged. In the first quarter, the participation rate dropped to 63.8%, a near 29-year low.
Manufacturing remains economic stronghold The pace of manufacturing activity remained strong β and relatively unchanged β in the first quarter. The Institute for Supply Management Purchasing Manager Index rose to 54.1 in January and ended the period at 53.4 β just a half a point below where it started on January 1, 2012. Survey respondents were generally optimistic about business conditions, although "stable" and "steady" were more commonly used to describe the current environment than "improving."
Survey respondents expressed concerns about prices and caution about the softening of global growth. However, inflation remains generally under control. Higher energy prices boosted the rate of inflation in the first quarter. Core inflation, which excludes food and energy, remains at a high level near 2.3%. At least for now, the Fed appears to be more concerned about the pace of growth than with inflation at its current rate.
Survey respondents expressed concerns about prices and caution about the softening of global growth. However, inflation remains generally under control. Higher energy prices boosted the rate of inflation in the first quarter. Core inflation, which excludes food and energy, remains at a high level near 2.3%. At least for now, the Fed appears to be more concerned about the pace of growth than with inflation at its current rate.
The Fed on hold for now
It is hard to assess the Fed's next move, because it clearly depends on what happens to growth as we move into the second half of the year. At this point, there is no uniform consensus on how to proceed, as opinions vary on downside risks. Some Fed members believe the current amount of accommodation is sufficient, while others want more action now. Our investment strategy team believes that the Fed is likely to execute more quantitative easing, keyed on our expectation that growth could slow into the summer months. A significant shift in either direction is likely to be decisive for the Fed. For now, it remains on hold.
Asset allocation positioning
Target equity weight reflects positive sentiment At quarter end, our portfolios emphasize equities over fixed income, with a focus on lower beta, dividend paying companies and a modest underweight in mid- and smallcap companies. This positioning reflects a positive, but cautious optimism that good companies at all capitalism levels have the potential to do well. However, we believe that stock selection will become increasingly important as investors become more selective and cross-correlations among broad groups continue to decline. Going forward, we believe companies that can deliver on earnings are well positioned for further gains.
Outside the United States, portfolios are overweight in emerging market equities, which enjoy the support of solid economic growth in 2012 despite a slowdown in Europe. Slower economic growth in China has shifted our focus from commodity-to consumer-based equities in that region. However, capital investment still rules the day in terms of maintaining high levels of growth for China.
Emphasis on yield in fixed income
An overweight in high-yield within fixed income reflects continued confidence that investors are willing to take on more risk to boost the yield potential of their holdings. Data reinforces our confidence, as re financing activity remains significant and the lowest rung of the high-yield market accounts for only about 5.0% of new issues. At 624 basis points, the yield difference between high-yield and investment-grade bonds has the potential to narrow further. With interest rates at historical lows across the maturity spectrum, Treasury and TIPS represent only a small portion of fixed-income exposure. Outside of the United States, exposure to emerging market debt is above our target weight, as yields remain attractive and monetary policy has, in some cases, turned more accommodative. Alternatives provide added diversification A position in absolute return strategies, with their relatively low correlation to traditional assets, provides diversification to equity and fixed-income allocations. Furthermore, should traditional equity and fixed-income markets experience a correction, the presence of absolute return oriented investments can help potentially better protect investor capital from undue downside losses. A small position in commodities and a position in convertibles round out the alternatives positioning, and continue to offer some upside potential even though they had a very strong showing in the first quarter.
It is not possible to invest directly in an index.
Past performance does not guarantee future results.
The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization U.S. stocks. The MSCI EAFE Index is a capitalization-weighted index that tracks the total return of common stocks in 21 developed-market countries within Europe, Australasia and the Far East.
The MSCI Emerging Markets Index is a widely accepted index composed of a sample of companies from 25 countries representing global emerging stock markets. It incorporates reinvested dividends applying the withholding tax rate applicable to non-resident individual investors that do not benefit from double taxation treaties.
Investments in foreign securities involve certain risks not associated with investments in U.S. companies due to political, regulatory, economic, social and other conditions or events occurring in the country, as well as fluctuations in currency and the risks associated with less developed custody and settlement practices. Risks are particularly significant in emerging markets.
It is not possible to invest directly in an index.
Past performance does not guarantee future results.
The Barclays Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated and non-convertible investment-grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity.
The BofA/Merrill Lynch High Yield Cash Pay Only Index tracks xed-rate, coupon-bearing bonds with an outstanding par that is greater or equal to $100 million, a maturity range greater than one year and a rating less than BBB/Baa3 rated, but not in default. The Cash Pay Only Index excludes payin- kind bonds and deferred interest bonds that are not yet accruing a coupon.
The BofA/Merrill Lynch All Convertibles All Qualities Index is a widely used index that measures convertible securities' performance. It measures the performance of U.S. dollar-denominated convertible securities not currently in bankruptcy with a total market value greater than $50 million at issuance.
There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is more pronounced for longer term securities.
Non-investment-grade securities, commonly called "high-yield" or "junk" bonds, have more volatile prices and carry more risk to principal and income than investment-grade securities.
The National Association of Real Estate Investment Trusts (NAREIT) Index is an index that re ects performance of all publicly traded equity REITs.
The U3 is an official unemployment rate per the ILO definition, which occurs when people are without jobs and they have actively looked for work within the past four weeks.
The U6 measures part-time workers who want to work full time but cannot due to economic reasons.
Alternative investments involve substantial risks and are more volatile than traditional investments, making them more suitable for investors with an above-average tolerance for risk.
Asset allocation and diversification does not ensure a pro t or guarantee against a loss.
Q2 2012
Global overview: A fragile global economy Concerns around the health of the global economy were centered in news headlines focusing on Washington D.C., Europe, China and the Middle East. In the U.S., economic indicators remained mixed but generally indicate support for slow, sustainable economic growth. European policymakers have made progress in containing the debt crisis, though they still have not solved the issue of longterm solvency. The European Central Bank has lowered interest rates and flooded the financial system with liquidity that provides breathing space for companies to restructure balance sheets. These massive infusions of liquidity whet the appetite for risk from investors around the world. However, it also delayed a true reckoning with the European financial situation, as concerns about Spain and Portugal continue to cloud the outlook. These structural challenges that persist in the developed world, and slowing growth in emerging market economies, leave the global economy in a fragile state.
Yet, despite a more modest pace of growth, emerging markets remain solidly positive. Domestic demand and slowing inflationary trends have also helped to shore up emerging market economies. Joblessness remains low and monetary conditions remain easy.
Market overview
Stocks rally around the world
A stock market rally that commenced in the fourth quarter of 2011 continued into 2012 in the U.S. and around the world, as all major market regions generated double-digit returns. Volatility declined sharply as Europe debt fears quieted and sentiment improved. The rally in U.S. equities was largely driven by an expansion in "multiples"β an increase in stock prices relative to their earnings. By the end of the quarter, stocks no longer appeared as cheap as they were late in 2011. Earnings estimates for 2012 have come down, and we continue to advocate caution in the period ahead. Valuations continue to favor U.S. largecap stocks over small-cap stocks. Historically, investors tend to favor large company stocks in the face of sluggish economic growth and low interest rates.
The broad-based S&P 500 Index gained 12.6% for the first quarter, with dividends reinvested. Mid-cap stocks outperformed large- and small-cap stocks, but the advantage was slight. Growth stocks generally outperformed value stocks, all as measured by their respective Russell indices.
Financial stocks reversed course. Financials was the worst performing sector in 2011 and the best performing sector in the first quarter of 2012. Information technology stocks soared on improved economic data. Nine of 10 S&P industry sectors logged gains for the quarter. Utility stocks were the weakest performers, declining 1.62%. Telecommunication services followed with a gain of just 2.08%.
Stock markets outside the United States also generated solid returns for the quarter. The MSCI EAFE Index, a broad measure of stock market returns in developed countries, gained 10.86%; EAFE returns were buoyed by strong returns in Germany, Belgium, Austria and the Nordic markets of Denmark, Finland, Norway and Sweden. Under the cloud of its own mounting debt problem, Spain was the only eurozone country to deliver a negative return.
Japan's stock market rose 10.16% in U.S. dollar terms. For local currency returns, however, Japan gained 17.82%, buoyed by weakness in the Japanese yen. Solid economic growth and accommodative monetary policy helped boost emerging stock market gains. The MSCI Emerging Markets Index rose 14.07%, led by the emerging markets of Europe, the Middle East and Latin America. China lagged most other developed and emerging markets on fears of a sharp slowdown in growth.
Risk on for fixed-income investors Bonds lagged stocks during the first quarter as investors responded to signs of an improved environment with a greater appetite for risk.
Risk on for fixed-income investors (continued) After a year of strong returns, Treasuries and TIPS reversed course. Treasuries, in fact, delivered negative returns as yields rose across the curve during the first quarter. The yield on the two-year Treasury rose by 8 basis points (a basis point is one hundredth of a percent), while the five-year Treasury rose 20 basis points and the 10-year rose 33 basis points to 2.22% at the end of the quarter. Historically, yields tend to rise in March for a variety of reasons. Japanese investors have been big buyers of U.S. bonds, and March is the end of the fiscal year in Japan. New issuance early in the year takes time to be digested, pressuring yields in the process. In the first quarter, jobs numbers also tend to be higher because of seasonal factors, which start to run out of gas in the second quarter.
Aside from Treasuries, most investment-grade sectors of the fixed-income markets generated returns between 0.50% and 3.00%. The Barclays Aggregate Bond Index, a broad measure of investment grade government and corporate bonds, returned 0.30% for the quarter. Riskier sectors fared much better. The high-yield sector gained 5.05%, as measured by the Bank of America/Merrill Lynch High Yield Cash Pay Bond Index. The lowest quality rung of the high-yield bond market (bonds rated CCC) was up almost 10%. Fundamental improvements in company balance sheets, reduced leverage and ample liquidity imply that high-yield and investment-grade corporate bonds have the potential to continue to provide attractive returns going forward, absent another growth score or are-ups in the European sovereign debt crisis. Emerging market bonds were also solid performers, with a 4.86% gain, as measured by the JP Morgan Emerging Market Bond Index. Mixed results from alternative asset classes Broad commodities index returns lagged equities despite a sharp rise in the price of oil and a moderate increase in the price of gold. Declining natural gas prices and modest gains in the prices of agricultural commodities kept a lid on the overall index. By contrast, convertible securities rebounded strongly after a weak fourth quarter. The Bank of America/Merrill Lynch All U.S. Convertibles Index gained 10.22% during the quarter. Improved economic data helped buoy real estate investment trusts to another strong quarter. The FTSE NAREIT All Equity REIT Index returned 10.79%.
U.S. Economic Outlook
A cautious optimism
First quarter data was mixed, but it generally indicated support for slow, sustainable economic growth. Employment data was strong in the first two months of the period, but the March report of 120,000 new jobs fell considerably short of the two previous months. The slowdown in job growth is consistent with our assessment that seasonal adjustment factors may be overstating strength in a number of key areas, labor among them. Mild weather also worked in favor of the U.S. economy, minimizing the bite of higher energy prices on home heating oil and providing a boost to consumer spending. Credit conditions have eased, and housing has rounded the corner, even though its contribution to economic growth will be small. Personal consumption expenditures, a measure of spending on and consumption of consumer goods and services and the main driver of gross domestic product (GDP) growth, is behind where it should be at this point in the economic cycle. Expectations for 2012 economic growth, which were low at the beginning of the period, have caught up to the current data, making it more dif cult to beat expectations going forward. The next few months will test the resiliency of the economy as seasonal support factors recede and fiscal austerity begins to weigh on households.
Spending continued to hold up well in the first quarter, despite only a modest increase in real personal income. Core retail sales, the proxy for personal consumption expenditures, increased on the order of 5% (annualized) or just over 2% adjusted for inflation. Automobile sales, which do not feed directly into GDP, were encouragingly strong. In a worrisome development, the personal savings rate ended the quarter at a cycle low of 3.7%, as inflation took a bigger bite out of consumer pocketbooks. Disposable income growth has remained weak and consumers appear to be feeding their spending habits in some part by drawing down savings. Household net worth did, however, receive a big pop from the rising equity markets. As you can see from the chart above, equities accounted for most of the increase in household net worth in the first quarter.
The generally favorable mood of the markets and the economy lifted consumer confidence in the first two months of the period. However, it has not risen above its recession level; after February's sharp rise, the March figure came down somewhat.
Solid job growth During the rst quarter of 2012, the U.S. labor markets added approximately 635,000 new jobs. However, net job creation in March registered a disappointing 120,000 β far short of the 200,000+ gains for December, January and February. And a drop in the unemployment rate to 8.2% left nothing to cheer about, since it was largely the result of a further drop in the labor-force participation rate β a measure of the people actively employed and those actively looking for jobs, which excludes those who might have dropped out of the labor force, often because they are discouraged. In the first quarter, the participation rate dropped to 63.8%, a near 29-year low.
Manufacturing remains economic stronghold The pace of manufacturing activity remained strong β and relatively unchanged β in the first quarter. The Institute for Supply Management Purchasing Manager Index rose to 54.1 in January and ended the period at 53.4 β just a half a point below where it started on January 1, 2012. Survey respondents were generally optimistic about business conditions, although "stable" and "steady" were more commonly used to describe the current environment than "improving."
Survey respondents expressed concerns about prices and caution about the softening of global growth. However, inflation remains generally under control. Higher energy prices boosted the rate of inflation in the first quarter. Core inflation, which excludes food and energy, remains at a high level near 2.3%. At least for now, the Fed appears to be more concerned about the pace of growth than with inflation at its current rate.
Survey respondents expressed concerns about prices and caution about the softening of global growth. However, inflation remains generally under control. Higher energy prices boosted the rate of inflation in the first quarter. Core inflation, which excludes food and energy, remains at a high level near 2.3%. At least for now, the Fed appears to be more concerned about the pace of growth than with inflation at its current rate.
The Fed on hold for now
It is hard to assess the Fed's next move, because it clearly depends on what happens to growth as we move into the second half of the year. At this point, there is no uniform consensus on how to proceed, as opinions vary on downside risks. Some Fed members believe the current amount of accommodation is sufficient, while others want more action now. Our investment strategy team believes that the Fed is likely to execute more quantitative easing, keyed on our expectation that growth could slow into the summer months. A significant shift in either direction is likely to be decisive for the Fed. For now, it remains on hold.
Asset allocation positioning
Target equity weight reflects positive sentiment At quarter end, our portfolios emphasize equities over fixed income, with a focus on lower beta, dividend paying companies and a modest underweight in mid- and smallcap companies. This positioning reflects a positive, but cautious optimism that good companies at all capitalism levels have the potential to do well. However, we believe that stock selection will become increasingly important as investors become more selective and cross-correlations among broad groups continue to decline. Going forward, we believe companies that can deliver on earnings are well positioned for further gains.
Outside the United States, portfolios are overweight in emerging market equities, which enjoy the support of solid economic growth in 2012 despite a slowdown in Europe. Slower economic growth in China has shifted our focus from commodity-to consumer-based equities in that region. However, capital investment still rules the day in terms of maintaining high levels of growth for China.
Emphasis on yield in fixed income
An overweight in high-yield within fixed income reflects continued confidence that investors are willing to take on more risk to boost the yield potential of their holdings. Data reinforces our confidence, as re financing activity remains significant and the lowest rung of the high-yield market accounts for only about 5.0% of new issues. At 624 basis points, the yield difference between high-yield and investment-grade bonds has the potential to narrow further. With interest rates at historical lows across the maturity spectrum, Treasury and TIPS represent only a small portion of fixed-income exposure. Outside of the United States, exposure to emerging market debt is above our target weight, as yields remain attractive and monetary policy has, in some cases, turned more accommodative. Alternatives provide added diversification A position in absolute return strategies, with their relatively low correlation to traditional assets, provides diversification to equity and fixed-income allocations. Furthermore, should traditional equity and fixed-income markets experience a correction, the presence of absolute return oriented investments can help potentially better protect investor capital from undue downside losses. A small position in commodities and a position in convertibles round out the alternatives positioning, and continue to offer some upside potential even though they had a very strong showing in the first quarter.
It is not possible to invest directly in an index.
Past performance does not guarantee future results.
The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization U.S. stocks. The MSCI EAFE Index is a capitalization-weighted index that tracks the total return of common stocks in 21 developed-market countries within Europe, Australasia and the Far East.
The MSCI Emerging Markets Index is a widely accepted index composed of a sample of companies from 25 countries representing global emerging stock markets. It incorporates reinvested dividends applying the withholding tax rate applicable to non-resident individual investors that do not benefit from double taxation treaties.
Investments in foreign securities involve certain risks not associated with investments in U.S. companies due to political, regulatory, economic, social and other conditions or events occurring in the country, as well as fluctuations in currency and the risks associated with less developed custody and settlement practices. Risks are particularly significant in emerging markets.
It is not possible to invest directly in an index.
Past performance does not guarantee future results.
The Barclays Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated and non-convertible investment-grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity.
The BofA/Merrill Lynch High Yield Cash Pay Only Index tracks xed-rate, coupon-bearing bonds with an outstanding par that is greater or equal to $100 million, a maturity range greater than one year and a rating less than BBB/Baa3 rated, but not in default. The Cash Pay Only Index excludes payin- kind bonds and deferred interest bonds that are not yet accruing a coupon.
The BofA/Merrill Lynch All Convertibles All Qualities Index is a widely used index that measures convertible securities' performance. It measures the performance of U.S. dollar-denominated convertible securities not currently in bankruptcy with a total market value greater than $50 million at issuance.
There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is more pronounced for longer term securities.
Non-investment-grade securities, commonly called "high-yield" or "junk" bonds, have more volatile prices and carry more risk to principal and income than investment-grade securities.
The National Association of Real Estate Investment Trusts (NAREIT) Index is an index that re ects performance of all publicly traded equity REITs.
The U3 is an official unemployment rate per the ILO definition, which occurs when people are without jobs and they have actively looked for work within the past four weeks.
The U6 measures part-time workers who want to work full time but cannot due to economic reasons.
Alternative investments involve substantial risks and are more volatile than traditional investments, making them more suitable for investors with an above-average tolerance for risk.
Asset allocation and diversification does not ensure a pro t or guarantee against a loss.
