Promoting Retirement Readiness

How the Pacific Funds Portfolio Optimization Funds offer long-term turnkey investment strategies.

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Market volatility, whether brought on by policymakers, panicked investors or global pandemics, often transforms financial professionals into crisis negotiators, trying to talk clients out of doing something drastic at precisely the wrong time. Investors who follow a time-tested and disciplined approach designed to weather volatility by leveraging diversification and maintaining long-term focus, however, may have calmer nerves resulting in calmer conversations.

At Pacific Life Fund Advisors (PLFA), we understand that financial planning is not a zero-sum game, and each client’s financial plan is unique. The decades-long journey to a well-funded retirement requires investors to head steadily down the road to financial success, even through bumpy patches. Institutional investors travel this well-trodden path by maintaining a steady pace to incrementally accumulate wealth and preparing for the inevitable volatile times. PLFA applies institutional investment standards in developing and managing our multi-asset funds, the Pacific FundsSM Portfolio Optimization Funds (“the Funds”). We utilize a philosophy of disciplined diversification that dictates our investment process and results in an array of investment strategies tailored for your clients’ long-term needs.

A Philosophy of Disciplined Diversification

During market swoons, many institutional investors maintain the discipline to stay the course while individual investors may panic, a reaction often driven by more concentrated—and therefore generally more volatile—portfolios. Although diversification does not ensure a profit or protect against losses, it can help minimize the effects of volatility. Investments in uncorrelated asset classes perform differently across market environments, making a diversified portfolio less susceptible to the impact of volatility without sacrificing the potential for returns. This concept serves as the cornerstone of every PLFA strategy.

Diversification can deliver long-term outperformance by protecting on the downside

Source: Morningstar as of 3/31/20.

1Note: The above allocation is broadly representative of Pacific Funds Portfolio Optimization Moderate and consists of 35% U.S. Large Caps (Russell® 1000), 15% U.S. Small Caps (Russell® 2000), 10% International Stocks (MSCI All-Country World ex-US), 30% Core Bonds (Bloomberg Barclays U.S. Aggregate Bond), and 10% High Yield Bond (Bloomberg Barclays U.S. Corporate High Yield).

As part of our investment philosophy, we build upon the foundation of diversification with three principles that ensure disciplined stewardship of assets.

We Focus on the (Time) Horizon

The objectives in our strategies stretch over years and even decades. Just as an airplane pilot looks at the horizon while taking off to lessen the sensation of speed for better control, maintaining a long-term focus allows us to avoid reactionary responses to short-term spikes in volatility.

We Follow Facts Not Feelings

Emotion can serve as an enemy to a prudent investor. We base our investment decisions on thorough analysis of objective data through both quantitative and fundamental processes.

We Gradually Make Adjustments

As our views are generally based on long-term trends rather than tactical trade ideas, we prefer to be the tortoise rather than the hare. We believe it’s prudent to move into positions with a slow and measured pace to avoid the cardinal sin of market timing.

A Balanced and Integrated Process for Consistent Results

PLFA’s philosophy is put into practice through a balanced approach carried out by an integrated team that seeks to deliver consistent risk-adjusted performance while emphasizing downside protection. We believe favorable investment outcomes are achieved by balancing tried-and-true methods with cutting-edge quantitative models. Our process relies on three distinct teams that serve as the bedrock of our Investment Committee: Asset Allocation, Investment Research, and Investment Risk Management.

Asset Allocation

The Asset Allocation team formulates investment views across the Funds. We develop these views through a combination of fundamental and quantitative research. PLFA’s top-down fundamental research delves into macro-economic, geopolitical, and asset-class specific topics.

These include analysis of monetary and fiscal policy, profitability and leverage trends across industries, consumer behavior, and business conditions. PLFA’s quantitative research leverages advanced techniques such as machine learning to forecast inflection points in economic cycles (such as the onset of a recession), monitor market sentiment, and ascertain the relative attractiveness of different regions across the globe.

Investment Research

The Investment Research team seeks to increase the Funds’ alpha by selecting asset managers through a “Four P” evaluation: People, Philosophy, Process, and Performance.

  • People considers the financial strength of the firm, its senior management team, and the quality of the portfolio managers and analysts managing the Funds.
  • Philosophy examines performance and risk targets, investment goals, and the Funds’ style.
  • The Process metric seeks to ensure the Funds’ results are repeatable.
  • Performance considers absolute and relative returns and risks as well as their consistency against both benchmarks and peers.

To determine which Funds performed well while considering their unique investment style, the team runs each Fund through a proprietary quantitative model that measures its style betas and breaks out the true, or net of factor, alpha. We have found that determining net-of-factor alpha is a key metric in forecasting the consistency of a manager’s outperformance.

Investment Risk Management

The Investment Risk Management team provides an independent assessment of the Funds. Specifically, the team seeks to ensure the Funds are taking appropriate levels of risk for their investment objectives and all risk exposures are intentional. This is achieved through continual analysis of portfolio management, portfolio construction, and security-level risk monitoring.

PLFA’s Turnkey Strategies

We believe that a properly diversified strategy can help protect investors’ portfolios by lessening the impact of outsized losses, helping them avoid the mistakes of market timing, and building their wealth by weathering the swings of each business cycle. Our Funds provide a broad blend of equity and fixed-income asset classes and follow the rigorous investment process described above. The difference between each Fund is primarily in their target risk levels and implementation. This means one of the Funds may complement your clients’ specific financial objective and preferences.

The Pacific Funds Portfolio Optimization Funds are PLFA’s flagship funds, designed to offer investors exposure to a broad array of global asset classes and increase the potential to deliver consistent performance through most market regimes.

Helping Clients Stay the Course

Warren Buffet once remarked about investing, “We don’t need to be smarter than the rest, we have to be more disciplined.” Charting the right course for your clients to thrive in retirement can be challenging, especially when it comes to the patience needed for a financial plan to come to fruition. PLFA offers strategies designed to help investors stay the course by avoiding market storms through a time-tested philosophy as well as cutting-edge techniques. Preparing for retirement often requires a multifaceted plan but having a philosophy and process to adhere to may result in a smoother journey and help ensure successful arrival at your clients’ destinations.

Learn more about the Pacific Funds Portfolio Optimization Funds

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. 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.

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.

Investors should consider a fund's investment goal, risks, charges, and expenses carefully before investing. The prospectus and/or summary prospectus should be read carefully before investing.

Third-party trademarks and service marks are the property of their respective owners.

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.

For financial professional use only. Not for use with the public.

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