In addition, we believe that international equities’ valuations may have run ahead their fundamentals for the moment. We have reduced some of our direct emerging markets exposure based on these short-term dynamics.
PROTECT: Risk Assist
Global equities continued their “sideways drift,” trading in a relatively narrow range last week. However, a material rise in interest rates—brought on by a growing belief among investors that the Fed could raise rates later this year and some rumors that the European Central Bank may begin to reduce bond purchases in the future—lead to slightly higher overall market volatility.
We re-positioned the Risk Assist portfolios to become slightly more defensive by increasing exposure to U.S. growth stocks, which currently have a lower beta (meaning they are less volatile than the overall market) than do value stocks. In addition, we increased allocations to U.S. defensive market sectors.
We are tactically positioned for slightly higher volatility going forward, although we do not expect to see especially strong or worrisome levels of volatility.
SPEND: Real Spend
Real Spend portfolios were rebalanced back to their respective maximum spending reserve levels, which range from 9% to 21%. Each model is capped at three years’ worth of spending, which has been shown to be sufficient to sustain any drawdown period that has occurred during the past 90 years.