iSectors®, LLC 1st Quarter 2021 Summary Commentary
- Standard & Poor’s 500 (S&P 500) Index rose 6.17% during the quarter, and it was up 56.35% over the past twelve months.
- MSCI All Country World ex-US Index (international stocks) lagged U.S. stocks in the 1st quarter, with the index up 4.68%. The index rose 55.31% over the past twelve months.
- MSCI Emerging Markets Equities Index was up 2.29% for the quarter and 58.39% over the past twelve months.
- Bloomberg Barclays U.S. Aggregate Bond Index underperformed stocks by falling 3.37% during the quarter. The index rose 0.71% over the past twelve months.
- Bloomberg Barclays 1-3 Year Government Bond Index declined 0.04% in the quarter and rose 1.57% over the past twelve months.
- Rogers International Commodities Index increased by 10.90% for the quarter and was up 50.48% over the past twelve months.
- Gold underperformed the broad commodity markets by dropping 10.41% in the quarter and rising only 5.10% over the past twelve months.
iSectors Allocation Model Commentary
iSectors Post-MPT Allocations
- The iSectors Post-MPT Growth and Moderate Allocations underperformed their respective benchmarks for the first quarter of 2021, with Post-MPT Growth falling 5.49% versus the S&P 500, which was up 6.17% and Post-MPT Moderate was down 3.69% versus its 60/40 stock/bond benchmark, which was up 2.31% (60/40 = 60% S&P 500 and 40% Barclays U.S. Aggregate Bond Index.)
- Post-MPT Growth is up 7.70% over the past twelve months, underperforming its S&P 500 benchmark, up 56.35%.
- Post-MPT Moderate rose by 9.96% over the past twelve months, underperforming its 60/40 stock/bond benchmark, which was up 31.71%.
- Historically, Post-MPT Growth and Moderate tend to outperform the S&P 500 index when the S&P 500 index’s returns grow at an annualized rate of less than 10% or when the S&P 500’s returns are negative.
- During the quarter, financial index funds positively impacted iSectors Post-MPT Growth and Moderate. Treasury bond funds reduced returns in both allocations.
- During the quarter, iSectors Post-MPT Growth and Moderate both bought energy index funds. Both models sold Treasury bond funds. At the same time, Moderate also sold utilities securities.
- The iSectors Domestic Equity Allocation was up 7.54% for the quarter. Over the past 12 months, the strategy increased by 51.51%. iSectors Domestic Equity has been the best performing iSectors allocation over the past twelve months.
- Quality dividend and small-cap growth funds posted the best results in the quarter, while mid- and large-cap growth funds underperformed.
- The fundamentally weighted iSectors Domestic Equity Allocation focuses on companies with less volatility and a history of increasing dividend payments for many consecutive years. These companies see demand by investors in the face of increased market volatility and lower interest rates. The portfolio’s current dividend yield is 2.32%.
- The iSectors Domestic Fixed Income Allocation was up 0.13% for the quarter and increased 7.78% over the past twelve months
- High yield bond funds outperformed investment grade bond funds during the quarter as yield spreads to Treasuries declined.
- With an effective duration of approximately 1.9 years and an average investment-grade rating, Domestic Fixed Income seeks to provide investors attractive income (current yield of 3.10%) while experiencing low principal volatility.
- The iSectors Enhanced Balanced Allocation increased by 2.08% compared to the Morningstar Moderate Target Risk benchmark rise of 2.17% in the quarter. Over the last 12 months, Enhanced Balanced was up 23.64%, while the moderate risk benchmark rose 33.07%.
- The Allocations’ best investments in the quarter were quality dividend funds. Treasury bonds negatively impacted results.
- The iSectors Enhanced Allocation series includes Income, Conservative, Balanced, Growth, and Aggressive allocation models. Each allocation blends short-term laddered bonds and equities focused on owning stocks that have increased their dividends for many consecutive years, with a 20% satellite allocation to iSectors Post-MPT Growth.
- First-quarter returns for the iSectors Global Allocations ranged from -2.05% for Global Fixed Income to +6.10% for Global Equity.
- Small-cap growth and quality dividend funds were the most significant positive contributors to the quarter’s performance for the Global Equity Allocation. U.S. and international growth equity funds underperformed.
- The Global Fixed Income Allocation’s preferred stock and international short term high yield and bank loan funds performed the best in the quarter. Long duration government and U.S. and international corporate bond funds underperformed.
- The iSectors Liquid Alternatives Allocation rose 3.15% during the quarter and 28.47% over the past twelve months.
- The portfolio’s allocations to blockchain sector funds contributed the most to its positive returns. Emerging market high yield bond funds and gold miner holdings hurt performance during the quarter.
- The Liquid Alternatives Allocation has outperformed its HFR hedge fund benchmark over the last 1, 3, 5, and 10 years.
- The iSectors Endowment Allocation’s total return was up 4.88% for the quarter and was up 35.22% over the past twelve months.
- The allocation’s business development corporations and quality dividend funds were the best performing allocations in the quarter. Emerging market high yield bond funds hurt the strategy in the last quarter.
- The Endowment Allocation targets clients with a goal of current income rather than total return. The strategy diversifies across 16 equity, fixed income, and alternative funds with low to moderate correlations to equity and fixed income markets. The allocation’s current yield is 5.50%.
- The iSectors Inflation Protection Allocation increased by 0.99%, while the iSectors Precious Metals Allocation fell 4.51% during the quarter. Over the past twelve months, Inflation Protection was up 24.98%, behind the Rogers Commodity Index benchmark. Precious Metals had a gain of 24.45% over the past 12 months.
- Falling gold and silver prices negatively impacted the iSectors Precious Metals Allocation. The iSectors Inflation Protection Allocation was significantly helped by U.S. real estate and commodity funds.
- Easy money policies currently being promoted by many Central Banks worldwide will have long-term severe inflationary effects on our economy. We believe inflation and higher interest rates will be the most significant risk factors investors will face over the next 20 years. The recovery in precious metals and other commodity prices over the past year 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 and the potential decline in the value of the dollar.
- The iSectors Capital Preservation Allocation was down 0.19% for the quarter and increased by 4.24% over the past 12 months. The model has outperformed the Barclays 1-3 Year Government Bond benchmark since its January 2010 inception.
- The Capital Preservation Allocation has a current yield of 1.74% with an effective duration of 1.5 years and an average investment-grade rating.
- The Capital Preservation Allocation offers a cash alternative with short durations to preserve investment principal in an economic environment characterized by volatile interest rates. It also provides the potential for enhanced returns versus money market funds while maintaining liquidity in the current low-interest-rate environment.
- The iSectors Tactical Global Balanced Allocation rose 7.70% during the quarter. It is up 23.57% over the past year. Tactical Global Balanced has been the best performing iSectors Allocation over the past 3-month period.
- Real estate and commodity holdings outperformed. Investments in gold funds negatively impacted results in the quarter.
- The Tactical Global Balanced Allocation is currently fully invested in U.S. large- and small-cap equities, developed international equities, emerging market equities, commodities, and real estate.
All model returns presented gross of fees. Index comparisons are provided for information purposes. You cannot invest directly in an index, only in index funds that charge fees. Disclosures