3rd Quarter 2011
The daily news seemed to drive market instability during the third quarter of 2011, which saw a continuing trend of increasing volatility. Central to this was Greece, with its rescue negotiations and potential default dominating the news. Swirling speculation as to which European sovereign may be next to slide into the debt abyss added to the frenzy. We believe these types of extreme events tend to cluster and to take on a momentum of their own, which our Dynamic Portfolio Optimization model attempts to anticipate. It is possible that some of this building disruption is what our model was sensing earlier in the year when it signaled for us to take a more defensive stake in the portfolio, and as it continues to signal for cautious, conservative allocations. The Fund's performance during the quarter reflects these relatively defensive allocations as it dropped only marginally compared with double-digit losses for the broader US market (as measured by the S&P 500 Index) and the its composite benchmark (35% Russell 3000 Index/35% MSCI ex-US Index/30% Barclays Capital Aggregate Bond Index).
Toward the end of the third quarter the model indicated that some small and well-diversified equity exposures were appropriate, resulting in 1% to 4% allocations to ETFs with exposure to Australia, Singapore, Brazil, broader Latin America, and the US Healthcare sector being initiated. Overall, though, conservatism was the watchword as 56% of assets remained in high-quality, short-maturity fixed-income securities and 18% in cash at quarter-end.
Many investors remain cautiously optimistic, hoping for a year-end market rally from admittedly oversold conditions or a positive European debt resolution. We remain more rooted in events and data taking place in the marketplace. Although our model is seeing modest signs of improvement, our outlook remains cautious.
Note: The Fund invests in exchange-traded funds (ETFs) which are securities of other investment companies. An ETF seeks to track the performance of an index by holding all or a sampling of the securities on that index. An ETF may not be able to replicate an index exactly since returns may be reduced by transaction costs, expenses and other factors while the index has none. The Fund invests in many different areas of the market, each of which may involve its own element of risk. Use of aggressive ETF investment techniques such as futures contracts, options on futures contracts and forward contracts may expose an underlying fund to potentially dramatic changes (losses) in the value of its portfolio. Credit risk or default risk could negatively affect the Fund’s share price. Inverse or ‘short’ ETFs seek to profit from falling market prices and will lose money if the market benchmark index goes up in value. Leveraged ETFs seek to provide returns that are a multiple of a benchmark and can increase risk exposure relative to the amount invested and can lead to significantly greater losses than a comparable unleveraged portfolio.
Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Contact 800 992-8151 for a prospectus containing this and other information. Read it carefully. Aston Funds are distributed by BNY Mellon Distributors Inc.