Asset Allocation Strategies. Confluence’s Asset Allocation strategies involve apportioning the portfolio’s assets among various asset classes, the success of which generally depends upon our ability to estimate the expected returns, volatility, and correlations of the relevant markets for such assets. Expected returns and volatility for different asset classes vary over time, as do the correlations of different asset classes. Therefore, Confluence applies an adaptive process, one that evaluates economic and market variables in a forward-looking context. Our approach evaluates the investing landscape against the backdrop of the pending business cycle—a rolling time frame continuously looking forward at the next three years. The Confluence approach is not market timing. Rather, the intention is to remain within an acceptable risk profile, while changing the asset class mix to seek to optimize return potential. Confluence can adjust allocations in much shorter time frames, depending upon changing views of the marketplace and economy. Alternately, Confluence may continue for several quarters without making significant allocation adjustments if Confluence believes the existing posture remains optimal. While this flexibility is generally expected to result in diversification of the portfolio across multiple asset classes, asset classes may not perform as expected and may not display the level of correlation anticipated. If the assessment of the risk and return potential of asset classes is incorrect, the portfolio could significantly underperform the markets in general, particular markets, or other asset allocation strategies. If the assessment of the correlations between different asset classes is incorrect, the portfolio may not achieve the level of diversification that we anticipated, which can increase the risk of underperformance or negative performance. Confluence’s Asset Allocation strategies are implemented using passive ETFs, which own a basket of securities that track a particular market index. Changes in the price of an ETF, before deducting expenses, typically track the movement of the associated index relatively closely. ETFs charge their own management fees and other expenses that come directly out of the ETF returns. In addition, a commission on each purchase or sale of shares of the ETF may be charged by the executing broker-dealer, and these commission expenses will reduce the performance of the client’s portfolio. An ETF’s performance sometimes may not perfectly track the ...
Asset Allocation Strategies. The Asset Allocation strategies encompass risk-based allocations designed to adjust exposures to asset classes based upon expected economic conditions in both the U.S. and globally over a forecast period consisting of a rolling three-year outlook. These strategies are aligned across the spectrum of risk profiles and represent risk tolerances for the investment life stages of accumulation, protection, and distribution. In recognition of the fact that economies move through cycles, Confluence designs its Asset Allocation strategies to attempt to manage risk through changing economic conditions. This process is supported by seminal academic work from 1952 stating that expected risk and returns should be used as the capital market assumptions that underlie an effective asset allocation program. Accordingly, Confluence uses a rolling three-year time frame as its forecast period to seek to address opportunities and associated risks and incorporate flexible allocations that are modified each quarter to reflect appropriate exposures as expectations of macroeconomic factors and market conditions change. Macroeconomic factors may include issues related to inflation, economic growth, Fed policy, currency trends, commodity prices, quantitative easing or tightening, the regulatory environment, trade policies, budget deficits, and national debt as well as foreign central bank policies, global inflation, and foreign economic growth rates. Market condition evaluations may involve the outlook for the Fed’s overnight target rate, LIBOR, SOFR and other money-market rates, the shape of the yield curve, credit underwriting trends, corporate default rates, corporate bond spreads, corporate profitability, equity valuations, U.S. dollar exchange rates, capital flows, and fundamental factors affecting commodities. Each quarter, and in rare instances more frequently, should macroeconomic factors and market conditions dictate, Confluence’s Asset Allocation Committee (“AAC”) convenes to review, study, and align the strategies in accordance with the AAC’s updated forecasts given the then-current economic environment and outlook. The AAC uses its internally generated capital market assumptions for each asset class to optimize each strategy within the combination of each strategy’s distinct and strict risk budget and, where appropriate, yield governor to construct the allocations to 12 asset classes. Within the asset classes, the AAC examines each strategy for the appropriate ETFs to ut...
Asset Allocation Strategies. Asset allocation is the process of developing a diversified investment portfolio by combining different asset classes in varying proportions. A portfolio’s long-term performance is determined primarily by the apportionment of dollars in an account among the asset classes. Confluence’s Asset Allocation strategies are formed exclusively of ETFs. Confluence Asset Allocation strategies (Income, Income with Growth, Growth & Income, Growth and Aggressive Growth) are developed to meet investors’ risk tolerance, investment goals and time frames. Confluence’s investment philosophy is based upon independent, fundamental research that integrates evaluation of market cycles, macroeconomics and geopolitical analysis. Confluence’s portfolio management philosophy begins by assessing risk and follows through by positioning clients to seek to achieve income and growth objectives. Confluence’s approach to asset allocation is more dynamic than most traditional strategic allocation strategies. Confluence extends the traditional approach by incorporating forward-looking analytics that address changing opportunities and risks as we move through economic and market cycles. Investment objectives vary between growth and income, and may include a combination of the two, subject to limitations of overall portfolio volatility and risk. Equity allocations are typically the primary means to pursue growth objectives and may include ETFs focused on U.S. large, small and mid-cap equity securities, while non-U.S. equities may include ETFs focused on equity securities of issuers in non-U.S. developed countries or in emerging markets. Non-U.S. allocations may involve a focus or avoidance of certain countries or regions. Sector-specific analysis may be involved in certain equity asset classes, particularly in large cap equities. Growth and value style biases as well as factor exposures may also be included in allocation decisions. Income objectives in our Asset Allocation strategies are typically pursued through proportionate allocations to fixed income-oriented ETFs. In pursuing fixed income objectives, Confluence utilizes ETFs that represent a basket of bonds or other income securities that are designed to track the performance of targeted indices, sectors or asset classes. Allocations are managed to target specific duration or credit quality profiles and may include speculative grade allocations. As described below, Confluence utilizes a similar methodology in pursuing the income objective...
Asset Allocation Strategies. The Asset Allocation strategies are risk-based allocations designed to adjust exposures to asset classes based upon expected economic conditions in both the U.S. and globally over a forecast period consisting of a rolling three-year outlook. These strategies are aligned across the spectrum of risk profiles and represent risk tolerances for the investment life stages of accumulation, protection, and distribution. In recognition of the fact that economies move through cycles, Confluence designs its Asset Allocation strategies to attempt to manage risk through changing economic conditions. This design is supported by seminal academic work from 1952 stating that expected risk and returns should be used as the capital market assumptions that underlie an effective asset allocation program. Accordingly, Confluence uses a rolling three-year time frame as its forecast period to seek to address dynamic opportunities and associated risks and incorporate flexible allocations that are modified each quarter to reflect appropriate exposures as expectations of economic conditions change. Each quarter, and in rare instances more frequently should conditions dictate, Confluence’s Asset Allocation Committee (“AAC”) convenes to review, study, and align the strategies in accordance with the AAC’s updated forecasts given the then-current economic environment and outlook. There are currently five risk-based strategies including Aggressive Growth, Growth, Growth & Income, Income with Growth, and Income, with the latter three having tax-exempt income versions available. In addition, there are currently four Target Date strategies: Target Date 2025, Target Date 2030, Target Date 2035, and Target Date 2040. Each Target Date strategy mirrors a risk-based strategy and will shift its allocation every five years to the adjacent risk-based strategy in a succession of increasingly conservative steps. The final shift to mirroring the risk- based Income strategy will occur in the same year as the name of the Target Date strategy. For example, the Target Date 2030 strategy currently mirrors the Growth & Income strategy. In 2025, its allocation will shift to mirror the Income with Growth strategy, and in 2030 it will be set to mirror the allocation for the Income strategy where it will remain for the ensuing years. All strategies are comprised exclusively of ETFs. The core of the strategies typically uses ETFs that mimic the performance of the targeted index for each asset class utilized. The...
