Presentation on theme: "BlackRock 2014 Investment Themes"— Presentation transcript:
1 BlackRock 2014 Investment Themes January 2014In 2014, we see a world of opportunities—even if they often appear elusive. While uncertainty is high, your goals haven’t changed. You still need to save for retirement or find a way to get the income you need from your investments. We understand that investors feel overwhelmed by the challenges and don’t know what steps to take. During today’s seminar, we are going to discuss the critical five items you need to know and – most – importantly – five things you need to do to navigate the markets in 2014.NOT FDIC INSURED – MAY LOSE VALUE – NO BANK GUARANTEEThe opinions presented are as of January 2014 and are subject to change.
2 A Perfect Storm For Investors: Time To Act 199031 M1541%11%28%201040 M1917%7%35%There are more retireesEnjoying longer retirementsWith less guaranteed incomeAnd less savingsAnd higher taxesRetirement Population (65+ years)1Expected Years in Retirement2Pension as Retirement Income3(% of private sector workers with access to defined benefit plans)Changing demographics require clients to think about investing differently. More people than ever are approaching retirement and are spending more years in retirement, but they have less guaranteed income, have saved less and are facing even higher taxes. This perfect storm means investors need to act.Average 30-Year Personal Savings Rate4Marginal Taxes for the Highest Earners5Sources: 1 United States Census 1990 & 2010, 2 US Social Security Administration , 3 Employee Benefit Research Institute, 4 Federal Reserve Bank of St. Louis, 5 Congressional Research Service.
3 Generate Income, But Don’t Overreach 2014 Investment ThemesRethink Your BondsGenerate Income, But Don’t OverreachSeek Growth,Manage VolatilityINVESTMENT SUGGESTIONSAllocate to Flexible Bond PortfoliosTake a FlexibleApproach to IncomeAllocate to Traditional Equities111Seek Returns Beyond Traditional U.S. BondsPut Credit andDividends to WorkMitigate Risk with Diversified & Alternative Strategies222At BlackRock, we think successful portfolios need to be invested with these themes in mind.Keep Durations Short, But Know What You OwnAdapt to Higher TaxesSeek Conservative Equity Growth333
4 2014 Investment Themes – Rethink Your Bonds Generate Income, But Don’t OverreachSeek Growth,Manage VolatilityINVESTMENT LANDSCAPEAnxietyOver RiskConfusion Around BondsSitting on the SidelineWe believe longer-term interest rates will move higher in 2014, it is likely short-term interest rates will be anchored at zero67%90%48%Investors need to rethink their bonds since we believe interest rates will move higher in 2014, but short-term interest rates will be anchored at zero. Traditional bond investing won’t get clients where they need to go, yet most clients are anxious about risk, lack basic bond risk education and are sitting on the sidelines with too much cash.of investors are not willing to take on more risk to achieve higher returnsof advisors think clients need more education on credit and interest rate riskof investors currently favor cash for their investments and are wary of volatility
5 Interest Rates Drive Bond Returns Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityPrior periods of “financial repression” such as the 1940s and 1950s have been associated with negative real returns for traditional fixed income (that is nominal return less realized inflation)Today’s low interest rates resemble the 1940s & 1950s “financial repression” era…will returns follow?Interest Rates & Bond Returns %4.07Prior periods of “financial repression” such as the 1940s and 1950s have been associated with negative real returns for traditional fixed income (that is nominal return less realized inflation). Today’s low interest rates resemble that time period. Will returns also mimic those of the 40s and 50s?1930s1940s1950s1960s1970s1980s1990s2000sDecade to DateRealized inflation-2.045.342.232.527.365.082.922.53Interest rates sit below the level of inflation negating the yieldSource: Morningstar as of 12/31/13. Past performance does not guarantee or indicate future results. Interest Rates and Bond Returns represented by IA SBBI IT Govt Index from to 1975 and the Barclays US Aggregate Index from 1976 to For illustrative purposes only. Indexes are unmanaged. You cannot invest directly in an index.
6 Traditional Bond Risks Remain Skewed to the Downside Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityTraditional bond funds have overly concentrated interest rate risk &limited upside potential, as evidenced by 2013 lossesLong-term market cycle suggests bond returns will continue their fallThe end of an era: lowest 10 year return for traditional bonds10-Year Rolling Returns of the Core Bond IndexHigh: Sept 1991, 14.68%Risk Remains Skewed to the Downside: Traditional bond funds have a high degree of interest rate risk and limited upside potential, with rates near record lows.Sept 1974, 4.59%Sept 2013, 4.59%Source: Morningstar Direct as of 12/31/13. Past performance does not guarantee or indicate future results. Bond Returns represented by IA SBBI IT Govt Index through 1985 and the Barclays US Aggregate Index afterwards. For illustrative purposes only.
7 2014 Investment Themes – Rethink Your Bonds Generate Income, But Don’t OverreachSeek Growth, Manage VolatilityINVESTMENT RECOMMENDATIONS1Allocate to Flexible Bond Portfolios that are not tethered to a benchmark and have more flexibility to respond to market changes.2Seek Returns Beyond Traditional U.S. Bonds to enhance diversification and generate returns that are independent of low yields and rising rates in the U.S.The bond markets of 2013 may have led investors to question traditional bond strategies. Strategies that worked in the past did not provide the returns andprotection investors have come to expect. BlackRock suggests:Allocate to Flexible Bond PortfoliosSeek Returns Beyond Traditional U.S. BondsKeep Durations Short, But Know What You Own3Keep Durations Short, But Know What You Own as low duration funds do not always equal lower risk.
8 Allocate to Flexible Bond Portfolios Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityEmploying a flexible bond strategy is key to prepare for more volatility in monetary policy and interest ratesIn various interest rate environments, flexible funds can increase yield, reduce duration and effectively manage downside risksFlexible, non-traditional bonds outperformed traditional core bondsAverage annualized returns as of 12/31/13Most traditional bond strategies are inflexible. Handcuffed by their prospectuses, they remain closely tied to their interest rate-sensitive benchmarks, no matter what the environment. In fact, in 2013, interest rates rose and most traditional bond funds lost money.Flexible bond portfolios are not tethered to benchmarks, and have the ability to respond to market changes. With a wider opportunity set, these strategies can adapt to market and economic conditions by appropriately managing interest rate risk and credit risk.Consider an allocation to flexible bond portfolios as the bond markets of today have changed— traditional strategies that worked in the past may not continue to do so in the future.Source: Morningstar. As of 12/31/13. Flexible bond funds represented by the Morningstar category average for the nontraditional bond fund category. Traditional core bond funds are represented by the Barclays US Aggregate Bond Index. Past performance is not a guarantee of future results. Indexes are unmanaged. You cannot invest directly in an index.
9 Seek Returns Beyond Traditional U.S. Bonds Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityDuring the lost decade, diversifying away from U.S. traditional core equities improved returnsSeek investments with lower correlations to traditional bonds that generate a differentiated pattern of returnsDiversification during the lost decade for stocks Bond categories that may provide diversificationIncrease diversification by looking beyond the scope of traditional bond investingEquity Asset ClassLost Decade for Stocks ( )S&P 500 Index-0.95%International Equities+3.12%Long / Short Equity+4.36%Small / Mid Cap Value Stocks+6.36%Emerging Market Equities+9.95%3-Year Correlation to Traditional Core BondsLong / Short Fixed Income*0.06Non-traditional Bonds0.19Emerging Market Bonds0.35International Bonds0.54With traditional bonds in the U.S. offering less than compelling value and vulnerable to rising rates, consider seeking returns beyond traditional U.S. bonds.Enhance diversification within your bond portfolio by adding alternative strategies and by considering bond exposure outside the U.S. Investing beyond the U.S. bond market can help diversify the sources of your returns and contribute to the overall growth of your portfolio. Although diversification does not ensure profits in declining markets, by focusing on global credit opportunities and eliminating interest rate sensitivity, your returns are not dependent on rising or falling rates in the U.S.Lost decade chart – Source Morningstar. *12/1/10 – 11/30/13. Source Morningstar. *Long/Short Fixed Income represented by the BlackRock Global Long/Short Credit Fund. Traditional Core Bonds represented by Intermediate Term Bonds. Non-traditional bonds represented by the Morningstar Nontraditional bond category average. Emerging Market Bonds represented by the Morningstar Emerging Market Bonds category average. International bonds represented by the Morningstar World Bond category average. "Past performance does not guarantee future results."
10 Keep Durations Short, But Know What You Own Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityAdd ultra short duration strategies to stay invested, put cash to work and wait for rate normalizationOpportunistically barbell ultra short strategies with attractive, undervalued long duration optionsDifferent solutions for different goalsYield vs. DurationYieldWith interest rates at historic lows and the majority of traditional bond funds delivering losses in 2013, many bond investors are concerned about thepotential for rising rates. While there is no certainty in investing, staying on the sidelines in low-return asset classes like cash is likely to providenegative real returns (after inflation).Use ultra-short duration strategies to move cash off the side lines, seek incremental yield and minimize interest rate risk. Also, consider low duration and floating rate loan solutions, but be aware of the different levels and kinds of risk these funds may take.Duration* An investment in fixed income funds is not equivalent to and involves risks not associated with an investment in cash. Duration is a measure of a bond fund’s sensitivity to interest rates. For every year of duration, a 1% change in interest rates will lead to a 1% change in the opposite direction of a bond fund’s value. Source: Morningstar Direct. Barclays Live. S&P. BofA. As of 12/31/13. Yields are yield to maturities. Floating rate notes are represented by the Barclays US Floating Rate Note <5 Years Index. Short Maturity Bonds are represented by Barclays Short-Term Government/Corporate Bond Index. Floating Rate Income represented by the S&P/LSTA Leveraged Loan index. Low Duration Bonds represented by BofAML US Corp & Govt 1-3 Year.
11 2014 Investment Themes – Generate Income, But Don’t Overreach Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth,Manage VolatilityINVESTMENT LANDSCAPEInvestor Are Being Squeezedby Low YieldsRisksHave RisenTaxes Are Taking a Bigger BiteToday’s environment of near historic low yields and heightened volatility has led many investors to ask how to find more income.50%3X25%Investors need to generate income, but not overreach since today’s environment of near historic low yields and heightened volatility has led many investors to ask how to find more income. Today, investors are squeezed by low yields, at the same time as risks and taxes have risen.Yields on traditional core bonds are less than half of what they were in 2008Generating a 5% income stream required taking on three times more risk (standard deviation) than in 2008Marginal tax rates are 25% higher than 2012 levels
12 Generate Income, But Don’t Overreach Yields Have Fallen…Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityYields on traditional income sources have dried up to near record lowsHigher levels of income exist, but they come with higher levels of riskYields have diminished on popular income categoriesMorningstar category 12-Month distribution yields 2008 vs. 2013’08 Income11.28%’13 IncomeYield4.93%Investors are being squeezed by low yields: As shown below, yields on traditional core bonds are almost half of what they were just five years ago.3.97%3.36%2.28%Sources: Morningstar Inc. and Bankrate.com as of 12/31/13. Asset-weighted average yield for various Morningstar categories.
13 Risk Has RisenRethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityFinding a yield of 5% is much riskier today than it has been in decadesOverreaching for yield without knowing the risks can be dangerousThe standard deviation of a 5% income portfolio has multiplied 4 timesRisk of a portfolio that generates a yield of 5%7.72%3X the risk needed to obtain the same level of incomeStd. Dev. of a 5% income portfolio (%)Risks have risen: Generating an attractive income stream today requires taking on substantially more risk, so proceed with caution. Generating a 5% income stream required taking on three times more risk (standard deviation) than in 2008Essentially no risk to get to a 5% income portfolioSource: Morningstar, Inc. as of 12/31/13. Risk represented by 5 -year annualized standard deviation. The hypothetical 5% Income Portfolio in 2007 consisted of a 35% allocation to Money Markets and a 65% allocation to Core Bonds. In 2013 that allocation was 35% Core Bonds and 65% High Yield Bonds. Money Funds, Core Bonds and High Yield represented by the Morningstar Taxable Money Market Funds category, Barclays Aggregate Bond Index and Barclays Issuer 2% Capped High Yield Index, respectively.
14 2014 Investment Themes – Generate Income, But Don’t Overreach Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityINVESTMENT RECOMMENDATIONS1Take a Flexible Approach to Income by casting a wider net to find the best income opportunities while carefully balancing the trade-offs between yield and risk2Put Credit and Dividends to Work while decreasing the interest rate sensitivity of your portfolioHistorically low yields within traditional income sources means investors need to consider alternative strategies to help reach their goals. Generating income,but not overreaching will be key. BlackRock suggests:Take a Flexible Approach to IncomePut Credit and Dividends to WorkAdapt to Higher Taxes3Adapt to Higher Taxes by increasing allocations to attractively-priced municipal bonds
15 Take a Flexible Approach to Income Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityA single-minded search for yield can result in too much risk; it’s important to consider a wider range of investmentsCombining traditional & non-traditional income sources can help diversify, potentially lowering risk & increasing incomeStriking a prudent balance between income & riskRisk/Yield Over the 5-Year Period Ended 12/31/13High Risk High YieldPreferred StockMLPsHigh Yield BondsBank LoansEM DebtYield (%)US REITsHypothetical Mixed-Asset Income strategyHigh Dividend EquitiesInv. Grade BondsUS TreasuryStriking a prudent balance between income and risk requires widening the opportunity set by combining traditional and non-traditional sources of income. Aflexible investment approach across income-producing asset classes with differing characteristics can help provide higher yields and meaningful diversification.Take a flexible approach to income by casting a wider net to find the best income opportunities while carefully balancing the trade-offs between yieldand risk.Low Risk Low YieldRisk (standard deviation)Fixed incomeEquity incomeAlternative income sourcesSource: Bloomberg. Standard deviation measures volatility of returns. Higher deviation represents higher risk. Index yields shown for illustrative purposes only. Indices are unmanaged. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Fixed income yields are yield to worst. The rest are current yield. Bank Loans, EM Debt, High Dividend Equities, High Yield Bonds, Investment Grade Bonds, MLPs, Preferred Stock, US REITs, US Treasury and Hypothetical Mixed-Asset Income Strategy represented by S&P Leveraged Loan Index, Barclays EM Debt Index, MSCI USA High Dividend Yield Index, Barclays HY 2% Issuer Capped Index, Barclays Investment Grade Index, Alerian MLP Index, S&P US Preferred Stock Index, FTSE EPRA/NAREIT Developed Real Estate Index, Barclays US 7-10 Year Treasury Bond Index and a portfolio of 20% High Div. Equities, 25% High Yield Bonds, 10% Bank Loans, 5% Preferred Stock, 5% MLPs, 15% Inv. Grade Bonds, 10% EM Debt, 10% US MBS, respectively.
16 Generate Income, But Don’t Overreach Put Credit and Dividends to WorkRethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityHigh yield bonds, bank loans& high dividend equities have historically outperformed bonds in periods of rising ratesCareful of overreaching for yield in undiversified sectors like utilities, US/International REITs & MLPs“Credit” & “Dividends” outperformed “Core Bonds” in periods of rising rates Performance in calendar years when interest rates rose1994199920062013BankLoan6.60%High Div Equities6.00%18.94%25.12%HighYield-3.04%5.87%10.14%6.35%-1.65%5.05%6.57%5.17%CoreBond-4.01%-1.35%4.15%-0.97%Bonds that trade primarily based on credit risk, along with high dividend-paying equities, offer a substitute for low-yielding and increasingly vulnerable bondholdings. In today’s environment, avoiding the pitfalls of rising rates will be key. Asset classes like high yield bonds, bank loans and high-dividend payingequities have a history of outperforming core bonds in periods of rising rates. And although credit-sensitive bond sectors and dividend-paying equitiesmay exhibit higher volatility or have higher risks, they can meaningfully enhance diversification from more interest rate-sensitive core bonds.Put credit and dividends to work to help generate income, while potentially decreasing the interest rate sensitivity of your portfolio.Source: Morningstar. As of 12/31/13. High Yield, Bank Loan and Core Bonds represented by the Morningstar High Yield Bond, Bank Loan and Intermediate-Term Bond Category averages, respectively. High Div Equities represented by the Lipper Equity Income Fund Category Average. Past performance is no guarantee of future results. Shown for illustrative purposes only. It is not possible to invest directly in an index.
17 Generate Income, But Don’t Overreach Adapt to Higher TaxesRethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityWith higher taxes in 2013, municipals offer attractive after-tax incomeMunicipals are generally considered a high-quality asset class with yields that are rivaling high yield bondsImpact of tax changes: Muni bond yields attractive vs. taxable bondsYields and Tax-Equivalent YieldsMunicipal bonds have long offered a source of high-quality, low-volatility income. Municipals are unique in that they offer the benefit of income exempt from federal income taxes (and in some cases, state taxes). This benefit is especially valuable today as taxpayers feel the pinch of higher taxes, with the expiration of the “Bush Era” tax cuts and the additional tax increase resulting from the new healthcare law.Adapt to higher taxes by increasing allocations to attractively-priced municipal funds.Source: Source: Barclay’s Live. Data as of 12/31/13. For illustrative purposes only. Index yields are shown for illustrative purposes only and do not predict or depict the yield of any Blackrock fund. Past performance does not guarantee future results. Fixed income yields are represented by yield to worst. All other yields represented by current yield. US Treasuries represented by the Barclays Treasury Index; Municipal bonds by the Barclays Municipal Index; Corporate bonds by the Barclays Corporate Index.
18 2014 Investment Themes – Seek Growth, Manage Volatility Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth,Manage VolatilityINVESTMENT LANDSCAPEExtreme VolatilityA New Look at Equity DiversificationA GrowingNeed for GrowthWe expect modest global growth with fewer, but continued, political and fiscal pressures world-wide.1/285%54%Investors should seek growth and manage volatility since we expect modest global growth with fewer, but continued, political and fiscal pressures world-wide. Extreme volatility has prevented many investors from capturing all the returns of the equity markets and many investors have inadvertently “diversified” into riskier equities. All this has caused many investors to miss out on recent market rallies, resulting in an even greater need for growth.The amount of equity returns clients missed out on over 20 years* due to mis-timing the markets. The wild ride of equity highs and lows, produced both exciting returns and painful losses.Of equity assets have “diversified” into equities that are riskier than the S&P 500† rather than using less volatile and less correlated strategiesof investors didn’t benefit from recent rallies. To achieve their goals, investors should consider increasing their use of equities and managing risk by mixing less-volatile and higher-potential solutions.*Source: Bloomberg,Dalbar; as of 12/31/12. Past performance does not guarantee or indicate future results. †Source: Morningstar as of 12/31/13.
19 Better Equity Diversification: Embracing Lower Risk Growth Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityUtilizing additional growth categories can support diversification and lower risk across growth strategiesFinding less-volatile diversifiersReturn/Risk, last 10 years ended 12/31/13Lower Risk Equity DiversifiersTraditional Equity DiversifiersMany traditional equity diversifiers actually resulted in taking on more risk than the general equity market. Higher risk, higher return strategies can help investors achieve growth, but don’t offer much diversification or protection.RiskSource: Morningstar as of 12/31/2013. Dividend Stocks represented by MSCI USA High Dividend Yield Index, Global Flexible represented by the Morningstar World Allocation category, Alternative Equity Strategy represented by the Credit Suisse Long/Short Equity Index, Global Stocks represented by the MSCI World Index, International represented by the MSCI EAFE Index, and Small Caps represented by the Russell 2000 Index.
20 Overweight Growth, Not Risk Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilitySticking with 60/40 or including more growth doesn’t necessarily imply higher volatilityMore Growth Doesn’t Have To Mean Higher RiskTraditional EquitiesConservative EquitiesFlexible & AlternativesBondsInvestors who need more growth should consider overweighting equities, but if used in a thoughtful manner, more growth doesn’t have to result in higher risk.20-Year StatsTraditional Stock and Bond60 Stock / 40 BondsRisk Managed Growth Approach67 Stocks / 33 BondsRisk9.17Lowest RiskReturn8.318.66 Highest ReturnSource: Morningstar, Lipper. Flexible & Alternatives Portfolio incorporates Morningstar Market Neutral (20%), Morningstar Equity Long-Short (20%) & Lipper Global Flexible Portfolio (60%) Categories. Conservative Equities portfolio is comprised of Lipper Equity Income (100%). Traditional Equitiescomposed of 100% Russell 1000 Value. Bonds represented by Morningstar Intermediate-Term Bond Category.
21 2014 Investment Themes – Seek Growth, Manage Volatility Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityINVESTMENT RECOMMENDATIONS1Allocate to Traditional Equities with an investment approach that makes volatility an asset, helping to provide the growth you need at any stage of life2Mitigate Risk with Diversified and Alternative Strategies that provide equity-like growth and dampen volatilityEven as the stock market approached new highs last year, volatility fears still lingered. For balanced growth, BlackRock suggests:Allocate to traditional equitiesMitigate risk with diversified and alternative strategiesSeek conservative equity growth3Seek Conservative Equity Growth that offer growth in strong markets, and help cushion the downside in difficult markets
22 Allocate to Traditional Equities Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityStocks look attractive relative to bondsWhile US equities are fairly valued by historical levels, many international regions continue to exhibit considerable valueEquities remain attractively valuedAsset class valuations vs. historical rangeExpensiveAverageFollowing last year’s strong gains, equities still offer attractive return potential. While stocks are no longer as cheap as they were a year ago, they also aren’tin a bubble. We believe equities still have room to run and offer the best opportunity for growth. In fact, we recommend an equity overweight relative tocash and bonds. For more attractive valuations though, consider international stocks, which haven’t enjoyed the same returns as U.S. stocks in the last fewyears, but are attractively priced.Allocate to traditional equities to help generate portfolio growth.CheapEQUITIESFIXEDSources: BlackRock, Thomson Reuters and Bloomberg, as of 12/31/2013. Notes: Historical time periods vary in range from 13 to 30 years. Regional equities represented by comparative MSCI indexes, US 10 Yr represented by US 10-YR treasury and High Yield by BofA ML HL index. Equity valuations based on average blend of dividend yield, book values and price earnings ratios versus historical levels.
23 Seek Growth, Manage Volatility Mitigate Risk with Diversified & Alternative StrategiesRethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityThe aim is to provide performance consistency, not spectacular one-off returnsAn enlarged opportunity set provides the flexibility to navigate diverse marketsDiversification can offer growth and risk protectionAnnual Total Returns of Morningstar Categories 12/31/03–12/31/132004200520062007200820092010201120122013+17.41+14.80+24.75+12.78-2.2+30.90+14.18+3.28+18.3031.32+14.77+6.26+16.27+11.24-30.25+28.14+10.95-1.40+14.8519.29+10.05+5.87+14.00+7.33-37.89+24.20+10.24-3.66+10.188.46+9.20-3.235.41+6.01-44.05+13.58+6.79-13.89+7.74-2.8810-Year AnnualizedReturns by Category7.01%World Allocation6.95%International StocksInvesting in a single sector or asset class can result in a volatile experience, with extreme up or down years. For smoother access to global markets anda more consistent experience, it is important to add alternatives and find strategies with broad flexibility to invest anywhere. One-stop-shop diversifiersin the form of flexible funds can provide a holistic solution offering growth with significantly reduced volatility. Alternative strategies can be added to existingportfolios to provide uncorrelated growth, reducing risk in an overall portfolio.Mitigate risk with diversified and alternative strategies to build a portfolio that can help grow assets and lessen market shocks.6.93%US Stocks4.61%BondsSources: Morningstar, Inc. as of 12/31/13. Performance is historical and does not guarantee future results. World Allocation, US Stocks, International Stocks and Bonds represented by Morningstar’s World Allocation, Large-Cap Blend, Foreign Large Blend and World Bond Categories, respectively.
24 Seek Conservative Equity Growth Rethink Your BondsGenerate Income, But Don’t OverreachSeek Growth, Manage VolatilityLower volatility strategies have proved stronger at navigating the extreme highs and lows of the last decade……by limiting losses and aiding participation in stronger marketsWhen risk doesn’t payMinimum Volatility Indices, 12/31/09 (year of inception) – 12/31/13Annualized Return (%)In a slow-growth environment characterized by volatility, it can be difficult to stay invested and achieve your financial goals. However, conservative equities such as dividend payers and stocks with a history of less volatility, can provide a moderate way to reap the rewards of holding equities. Historically, these conservative equities have provided much-needed downside protection in difficult environments while participating in up markets, and have therefore outperformed over the last decade.Seek conservative equity growth to build an equity portfolio that can grow and withstand volatility.Risk (standard deviation %)Source: Morningstar, BlackRock; as of 12/31/2013. Past performance does not guarantee future results.
25 Generate Income, But Don’t Overreach 2014 Investment ThemesRethink Your BondsGenerate Income, But Don’t OverreachSeek Growth,Manage VolatilityINVESTMENT SUGGESTIONSAllocate to Flexible Bond PortfoliosTake a FlexibleApproach to IncomeAllocate to Traditional Equities111Seek Returns Beyond Traditional U.S. BondsPut Credit andDividends to WorkMitigate Risk with Diversified & Alternative Strategies222Keep Durations Short, But Know What You OwnAdapt to Higher TaxesSeek Conservative Equity Growth333
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