2nd Quarter 2012
After an optimistic start to the year fueled by the latest quantitative easing maneuvers of the US Federal Reserve and other central banks worldwide, capital markets pulled back sharply during the second quarter. As April gave way to May, the S&P 500 Index’s early returns quickly evaporated with the broad market index ending May at virtually the year’s January starting point. The month of June witnessed a rebound rally that recouped some of the May losses. Still, general market returns by the end of June were anemic.
The Smart Portfolios models did sense a better risk asset condition at the beginning of the year, but our intermediate-term models indicated that this condition would likely be relatively short-lived. We kept the portfolio allocations conservative and constrained, reflecting the relatively high-risk environment, with bonds and cash instruments representing roughly 67% of assets. Thus, while the Fund lagged during the first quarter, it avoided most of the damage of the April and May markets declines. Overall, it outperformed its composite benchmark (35% Russell 3000 Index/35% MSCI World ex-US Index/30% Barclays Capital Aggregate Bond Index) by nearly two percentage points during the second quarter.
The model did cause us to increase allocations to risk assets such that by the end of the quarter the combined stake in equities and commodities was nearly 55%, with another 4% in currencies.
But, viewing the continued difficulties throughout most of Europe, the increasing evidence of a significant economic slowdown in China, and with election uncertainties domestically, it is likely we will witness continued bouts of general market volatility and some allocation biases to the perceived lower risk asset classes.
We do not traffic in forecasts or opinion, but it is worth noting that seasoned investment professionals such as Jeremy Grantham, Felix Zulauf, Marc Faber, and Jim Rogers have characterized the recent and current capital market conditions as “bizarre”, “unprecedented”, and “highly manipulated by central bankers.” Thus, while the current investment conditions remain challenging, we don’t believe it to be a lasting state of affairs. In the meantime, we plan to continue to adhere to our quantitative disciplines that focus upon managing volatility in seeking to deliver better long-term risk-adjusted returns.
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, consider the Fund’s investment objectives, risks, charges, and expenses. Contact 800 992-8151 for a prospectus or summary prospectus containing this and other information. Please, read it carefully. Aston Funds are distributed by Foreside Funds Distributors LLC.