Newfound’s Multi-Asset Income portfolio seeks to provide access to both traditional (e.g. global Treasuries, dividend stocks, and corporate bonds) and non-traditional (e.g. high yield bonds, REITs, MLPs, bank loans, preferreds, and EM debt) income-based asset classes within a disciplined risk management framework that seeks to avoid significant drawdowns.
A tearsheet and brochure for the Multi-Asset Income strategy are available in our document center.
With historically high equity valuations and low interest rates, forecasted returns for traditional U.S. core asset classes are anemic. We believe that high income asset classes are not only more fairly valued, but also offer a higher yield, meaning they can be used not only for their income potential but also as an engine of growth within a portfolio.
Beginning with a diversified universe of 16 global high-income asset classes, the portfolio evaluates each asset class for its on-going trend strength. Assets identified as exhibiting negative trends, and therefore a potential risk to capital safety, are removed from the portfolio.
After screening out asset classes exhibiting negative trends, the remaining exposures receive an allocation in proportion to their risk-adjusted income with single positions capped at 25%. If 3 or fewer asset classes remain, a position in short-term U.S. Treasuries is built. The portfolio can shift entirely to short-term U.S. Treasuries if all assets exhibit negative trends in an effort to avoid significant drawdowns.
Newfound’s Multi-Asset Income strategy is available as a mutual fund, separately managed account, on most major TAMPs, and in model delivery format.
Questions & Answers
The portfolio invests in exchange traded funds (ETFs) representing 16 global high income asset classes, including domestic and international dividend stocks, domestic and international sovereign debt, corporate bonds, high yield bonds, bank loans, domestic and international REITs, MLPs, convertible bonds, preferreds, equity buy write, local and USD-denominated EM debt, and mortgage REITs. We utilize ETFs as the building blocks of its portfolios because they are a transparent, cost-effective, and highly liquid means of gaining and managing exposure to particular asset classes and market sectors.
Due to the active risk management process employed, as well as the varying nature of the yields offered by the investible universe, the portfolio does not have a mandate for a specific yield target.
The portfolio seeks to manage risk in three ways. First, the portfolio embraces diversification, incorporating 16 global high income asset classes. Second, a simple trend-following overlay is employed on each asset class to remove those asset classes we believe are exhibiting excessive downside risk characteristics. Finally, the remaining asset classes are weighted based upon their risk-adjusted yield, favoring those positions that offer more yield per unit of volatility. Positions are capped at 25% to reduce concentration risk. If three or fewer asset classes pass our trend filter, a position in short-term U.S. Treasuries will be built.
The portfolio is evaluated on a weekly basis. In stable market environments, we expect to make few, if any, portfolio changes; in higher risk environments we expect to trade the portfolio more frequently in effort to keep up with changing market dynamics.