The second quarter of 2012 began with U.S. equities continuing to give back some of the gains achieved earlier in the calendar year. In the days leading up to August 31, 2012, markets continued to be shaken by European debt issues and by U.S. economic data. Monetary policy and fiscal policy have also come front and center as the debates continue over the ultimate success of quantitative easing and U.S. election outcomes. The resulting global uncertainty has created more volatile and linked markets around the world.
As we consider recent events and ponder what may lay ahead, we know with more clarity that world events certainly affect the U.S. markets. We do not stand alone, isolated from the world. U.S. companies are global companies. Their revenue and sales, business plans and investment and ultimately success or failure are more correlated to global events than ever in history. As such, we must keep an eye on such events throughout the coming months and years.
In addition to these global and political drivers, companies are unique in how each prepares, responds and survives the impact of world events and economic cycles. While some cycles may vary in length and events differ in impact, we believe, for U.S. equity exposure, the Summit Global Investments U.S. Low Volatility Equity Fund (the “Fund”) approach is effective over full market cycles.
Our philosophy to navigate such markets is simple and consistent throughout up and down markets. We believe that being invested in a low volatility equity portfolio over full market cycles provides lower price fluctuations, more consistent and reliable returns with smaller drawdowns and adds increased diversification when combined with other investment strategies. Our approach takes into account each underlying company’s stock volatility, expected market return and how it correlates with other stocks within the portfolio, ultimately seeking to maximize return with an overall lower risk than the cap-weighted benchmark.
As stated in the prospectus, the Fund seeks to outperform the S&P 500® Index over a market cycle while reducing overall volatility or risk.
The Mutual Fund’s (SILVX) shares rose 1.80% for the period February 29, 2012 (inception) through August 31, 2012 and rose 5.27% for the quarter ended August 31, 2012. While the Fund lagged the S&P 500® Index on an absolute return basis, on a risk-adjusted basis the strategy performed well: 5.27% for the Fund vs. 4.93% for the S&P 500® Index (7.93% multiplied by the beta of the Fund, 0.62) for the quarter ended August 31, 2012.
Financial markets are always unpredictable but there are several time-tested investment principles that may help put the odds in your favor. We firmly believe that investing with a long-term, risk-return perspective is key to experiencing superior risk-adjusted returns. While staying the course with a low volatility portfolio doesn’t eliminate risk, it can considerably lessen the effect of market volatility. While we are optimistic about the opportunities within the U.S. equity market, we remain laser focused on monitoring the risk of individual companies and the overall portfolio. During these times of uncertainty and volatility, we believe, for U.S. equity exposure, the Summit Global Investments U.S. Low Volatility Equity Fund approach is warranted.
For the most recent performance please visit: Morningstar.
Disclaimer: Past returns are no guarantee of future results. Summit Global Investments U.S. Low Volatility Equity Mutual Fund is sold by prospectus only.