August 15, 2016, was yet another watershed moment for investors as all three major U.S. indexes closed the day at record highs. This was the second time in less than a week that the S&P 500, Nasdaq and Dow Jones hit high-water marks on the same day. And yet, cautious optimism remained the prevailing mood around Wall Street. When asked about the bull rush, one analyst called this current rally merely a “hunt for yield.” Another strategist claimed the markets’ rise hinged on “the no-alternative factor.” These lukewarm endorsements would reflect investor activity over the next five days. As the week played out, choppy trading saw equities finish flat. In fact, by Friday, August 20, equities were off slightly from the all-time highs reached on Monday.
With today’s volatile markets continuing their rapid cycle of highs and lows, Beacon maintains its three-pillar approach in working towards capturing market gains while minimizing risk. We developed Beacon Vantage 2.0 portfolios based on these three layers of protection for investors: To maximize diversification; to provide downside protection; and to maintain discipline through mechanical execution.
In examining Beacon 2.0’s historical returns, we understand the portfolios’ strengths—it is designed to protect against a severe bear market. We saw these severe bears in 2000-2002 and 2007-2009. One of our advisors in the field even coined the phrase, “If you think there’s going to be one bear market in your lifetime, then 2.0 is the portfolio for you.”
In sideways markets, as we have seen of late, 2.0 has done well hanging with the market, but with about half the risk. However, due to the structure of 2.0, we may also experience some missed opportunities in these recent market conditions, which is why we have introduced our Beacon Vantage 3.0 portfolios.
Diversification with Downside Protection
As you know, the 2.0 portfolios allocate assets equally across every sector in the market through the ten traditional sectors as historically identified by the S&P, as well as real estate. In 2.0, we are looking for protection first and don’t make any bets on which sector will do well or poorly over the next month. This protects us against bubbles like we experienced in the tech industry in the late 90s.
In our 3.0 portfolios, we maintain a similar approach through the equal sector diversification, but we have also layered a new loss reduction risk management strategy at the individual sector level. This allows us more flexibility and the ability to track new trends as they develop while continuing to mechanically limit the impact of extreme market losses. Additionally, we have added a Vantage 3.0 Alternative Portfolio and a Vantage 3.0 Bond Portfolio to our standard risk-based portfolios to offer new, expanded diversification opportunities.
Strength in Numbers
While both 2.0 and 3.0 portfolios can work independently, where they really shine is when they are pulled together as one unified portfolio. Together they can work to create a new level of efficiency and consistency. We are already seeing our advisors take advantage of this blending ability with accounts that are at a roughly 50-50 split between the 2.0 and 3.0 portfolios. We look at this melding together as the next stage of portfolio management, not only diversifying our underlying investments but now also diversifying our risk management strategies as well.
For more information on Vantage 3.0 Portfolios:
• Download fact sheets and overviews from the Advisor Toolbox on BeaconInvesting.com
• Contact your wholesaler if you have any additional questions or material needs
• Register for the upcoming webinar to get your individual questions answered