March 2020

A balanced portfolio can help smooth the path to your financial goals and avoid market-timing detours

By Max Gokhman, Head of Asset Allocation, and Samuel Park, Director of Fundamental Research

 

Asset-allocation portfolios such as Pacific Funds Portfolio Optimization Funds help provide diversification that may give investors confidence to stay the course through market swings.

For example, in the fourth quarter of 2018, the S&P® 500 index dropped 13.5%, and anxious investors pulled an estimated $1 trillion out of the equity market that December.1 Investors who reduced equity positions during that temporary drawdown may have missed some or all of the 31.49% gain in the S&P 500 index for 2019.

The same holds true in the long term, as mistiming the equity market even a tiny percentage of the time can prove costly.

 

The Cost of Market Timing

Source: Pacific Life Fund Advisors LLC, Bloomberg (as of Dec. 31, 2019)

 

For the 10-year period ending Dec. 31, 2019, the S&P 500 index returned 13.56% annualized. However:

  • If investors missed only the 10 best days of the S&P 500 index returns during that decade, their annualized returns would have dropped by a third, from 13.56% to 9.12%. This equates to a difference of $117,000 on an initial $100,000 investment.1
  • Sitting out the 20 best days (out of 2,500 trading days) would have cut their S&P 500 index returns by more than half, to 6.00%. Their dollar gains would also have been cut in half from $356,000 to $179,000.

A diversified portfolio can reduce the effects of market mistiming by making the path smoother for investors. Because investments in uncorrelated asset classes perform differently across market environments, a diversified portfolio can lower the impact of volatility and lessen the chance of emotionally based investment decisions. Abandoning attempts to time the equity market can reward investors with increased returns.

For example, during the past 10 years, returns for Pacific FundsSM Portfolio Optimization Moderate have been 22% higher than those of the average individual investor.2 The chart below illustrates the impact of this return differential on a hypothetical $100,000 investment.

Diversified Pacific Funds Portfolio Optimization Moderate, which holds up to 50% in non-equity holdings, still produced $35,100 more in value than what the average individual investor would have received over the past 10 years.

Diversification can help reduce concentration risk and, with it, the impact of volatility. Investors, calmed by lower volatility impact in their portfolios, can then make long-term investment choices instead of reacting to market disruptions.

This steady approach is one of the keys to attaining the returns needed to meet investment goals for retirement and other important life objectives.

 

Growth of a Hypothetical $100,000 Investment


Source: Pacific Life Fund Advisors LLC, Bloomberg, Morningstar, Federal Reserve (as of Sept. 30, 2019)

 

 


 

Returns reflect reinvestment of dividends and distributions. Class A share returns shown at maximum offering price (MOP) reflect an up-front maximum 5.50% sales charge. Returns shown at net asset value (NAV) would have been lower if a sales charge had been deducted. Growth of $100,000 returns are shown at NAV and do not include sales charges. Performance for other share classes may differ.

For performance data current to the most recent month-end, call Pacific Funds at (800) 722-2333, or go to PacificFunds.com/Performance. Performance data quoted represents past performance, which does not guarantee future results. Current performance may be lower or higher than the performance quoted. The investment return and principal value of an investment will fluctuate so, when redeemed, may be worth more or less than the original cost.

Net annual operating expenses for Class A shares are 1.26% and total (gross annual) expenses are 1.32% and are effective 8/1/19 through 7/31/20. Gross Expense Ratio reflects the total annual operating expenses paid by the Fund. Net Expense Ratio reflects waivers, reductions, reimbursements, and the limitation of certain “Other Expenses.” Expense caps and/or fee waivers are reevaluated annually. There is no guarantee that the investment adviser will continue to cap expenses after the expiration date.

 

1Bloomberg as of Dec. 31, 2018

2Federal Reserve’s quarterly Flow of Funds report and Investment Company Institute mutual-fund asset data as of Sept. 30, 2019

 

For more Insights from Pacific Funds click here, or call (800) 722-2333.

About Pacific Funds  

Pacific Funds offers U.S. equity, fixed income, and multi asset mutual funds designed for growth, income generation, and diversification. Our managers seek to deliver consistent results with downside protection strategies to help shareholders meet their long-term financial goals.

About Principal Risks: There is no guarantee the Funds will achieve their investment goals. Asset allocation and diversification do not guarantee future results, ensure a profit, or protect against loss. Although diversification among asset classes can help reduce volatility over the long term, this assumes that asset classes do not move in tandem and that positive returns in one or more asset classes will help offset negative returns in other asset classes. There is a risk that you could achieve better returns by investing in an individual fund or multiple funds representing a single asset class rather than using asset allocation. Nontraditional or alternative investment performance may be correlated with traditional equity and fixed-income investments over short- or longer-term periods, resulting in a lessened diversification effect and increased volatility when included in a portfolio as part of an asset allocation strategy. Derivatives can be complex instruments that may experience sudden changes in price and liquidity, may be difficult to value, sell, or unwind, and may be leveraged, which can cause very large swings in value. A fund-of-funds does not guarantee gains, may incur losses, and/or experience volatility, particularly during periods of broad market declines, and is subject to its own expenses along with the expenses of the underlying funds. It is typically exposed to the same risks as the underlying funds in which it invests in proportion to their allocations.

Important Notes and Disclosures 

DOL - Pacific Funds

Pacific Life Insurance Company is the administrator for Pacific Funds. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

PFD2


You should consider a fund's investment goal, risks, charges, and expenses carefully before investing. The prospectus and/or the applicable summary prospectus contain this and other information about the fund and are available from your financial advisor. The prospectus and/or summary prospectus should be read carefully before investing.

PLFA3

Pacific Life Fund Advisors LLC (PLFA), a wholly-owned subsidiary of Pacific Life, is the investment adviser to Pacific Funds. PLFA also does business under the name Pacific Asset Management and manages certain funds under that name.

PSD2

Pacific Funds are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA), and are available through licensed third parties. Pacific Funds refers to Pacific Funds Series Trust.