Season’s Greetings & Merry Christmas!
As this week comes to a close, the markets struggled to find their way amongst the noise in Washington, D.C. ”Risk on” was one of the themes this week in the U.S. equities markets as we had the two largest back to back increases in the S&P 500 in over 5 months. ”Risk on” is a term to describe investor money flows into higher Beta, higher Standard Deviation, more volatile names. For example, If a stock trades at a P/E of 100, investment managers allocating into those names aren’t worried about the volatility these names introduce to portfolios. Investors start swinging for the fences by allocating into these names. Their thesis being that these companies will enhance their portfolio returns with faster and higher appreciation vs. other names. Hence, “risk on”.
The SGI Low Volatility Equity Model seeks to protect investors from experiencing these wild fluctuations, by limiting the downside risk in the portfolio while meaningfully participating in the upside markets historically offer. On a day to day basis this sometimes is hard to see in the SGI portfolio, especially if the market was up and SGI is down. The return path of the SGI Low Volatility Equity Model will differ from the return path of the S&P 500. Even though the portfolio stays 100% invested in equities the portfolio does not behave in the same manner as the markets.
Since September 14, 2012, the day the S&P 500 peaked for the year the Low Volatility Equity Strategy experience minor drawdowns of around 2%. At the end of 2012 clients of SGI were essentially flat during this period. However, the S&P 500 ended the year more than 3% off the highs of September 14, 2012.
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.