The Case for Pacific Funds Diversified Alternatives
Pacific life fund advisors, january 2016
Client Portfolio Manager Ryan Smith and Portfolio Manager Sam Park discuss how Pacific Funds Diversified Alternatives can help minimize the effects of a volatile environment on a portfolio.
Ryan Smith: Investors have no doubt felt that we live in a new era of volatility—and that feeling can be unsettling. When we tally up the days of highest volatility in the markets each year, we can clearly see what investors are feeling—a dramatic increase in extreme volatility during market crises. The chart (shown at 0:28 in the video above) shows the number of single trading days during the year when the market, as represented by the S&P 500® index, moved either up or down at least 2%—which is a big swing for a single day.
In the past, investors looking to protect from equity market volatility could build a portfolio of bonds and generate returns of about 6-8%1 and sometimes more. In fact, investors have enjoyed a 35-year tailwind for bonds as interest rates have declined toward zero. And remember, bond values increase as interest rates decline. But at this point, return expectations for an all-bond portfolio are much closer to the current yield near 2%. If investors want a return potential similar to those enjoyed in the past, they likely need to take a lot more risk. Investors must come to grips with these challenges. We know that many are looking for more effective ways to diversify their assets to navigate this new, more volatile era.
Sam Park: We built Pacific FundsSM Diversified Alternatives to help improve diversification when added to a portfolio. This Fund strives to provide smoother returns by using alternatives, or asset classes, and strategies that do not move in tandem with stocks or bonds. That way, we balance risk across market cycles, including in times of crisis.
Ryan Smith: The appropriate alternative asset classes and strategies are difficult to select—and the best managers in each specialty can be even more difficult to identify. We immediately saw that providing the right combination of different alternative strategies was the most effective way to help investors improve the diversification of their portfolios.
1 Represented by rolling 5-year annualized returns of every 5 year period from the Bloomberg Barclays Aggregate Bond Index from 1/1/1980 to 12/31/2005.
These views represent the views of the portfolio managers at Pacific Life Fund Advisors LLC as of November 17, 2016. These views should not be construed as investment advice, an endorsement of any security, mutual fund, sector, or index, the offer or sale of any investment, or to predict performance of any investment. No forecasts are guaranteed. All material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The opinions expressed herein are based on current market conditions and are subject to change without notice.
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.
Indexes are unmanaged and cannot be invested in directly. As with any mutual fund, the value of the Fund’s holdings will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. Non-traditional 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. Asset allocation and diversification do not guarantee future results, ensure a profit, or protect against loss. Better results could be achieved by investing in an individual fund or funds representing a single asset class rather than using asset allocation. A fund-of-funds 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 the allocation of assets among those underlying funds, among other risks. Debt securities are affected by changes in interest rates, with longer durations or fixed interest rates being more sensitive to changes in interest rates, making them generally more volatile than debt securities with shorter durations or floating or adjustable interest rates. Please see the prospectus for a detailed description of these and other risks associated with Pacific Funds Diversified Alternatives.
Investors 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.
Pacific Life Fund Advisors LLC (PLFA), a wholly owned subsidiary of Pacific Life Insurance Company, is the investment adviser to the Pacific Funds. PLFA also does business under the name Pacific Asset Management and manages certain funds under that name.
Mutual funds are offered by Pacific Funds. 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.
No bank guarantee. May lose value. Not FDIC insured.