Asset Allocation Model Portfolios

Transcription

1 February 2014 Asset Allocation Model Portfolios Christopher Eckert Portfolio Management Director Senior Vice President/Financial Advisor 320 Post Road West Westport, CT PHONE: TOLL-FREE: FAX: Inside Introduction to the Asset Allocation Model Portfolios... Page 2 Five Models Based on Risk Tolerance and Investment Objective... Page 4 ETF Strategy... Page 5 Mutual Fund Strategy... Page 6 ETF/Mutual Fund Strategy... Page 7 and services offered through Morgan Stanley Smith Barney LLC, member SIPC.

2 Asset Allocation Model Portfolios What are the Asset Allocation Model Portfolios? They are strategic and tactical asset allocation portfolios that are diversified across asset classes and investment styles, can incorporate both passive and actively managed investments and are managed on a discretionary basis. What is Strategic Asset Allocation? It is the long-term investment weightings for the major investment classes that both seek to fit an investor s risk profile and also take into account possible asset returns and volatility under varying economic and financial conditions. The Importance of Asset Allocation Modern theory on portfolio diversification states that appropriate asset allocation the process of distributing assets across different investment instruments and asset classes can create portfolios that produce the highest potential returns for a given level of expected risk, as measured by the volatility, or fluctuation, of portfolio value over time. What is Tactical Asset Allocation? Incorporates active decisions to overweight or to underweight asset classes in the near term relative to their strategic allocation based on: (i) the current and projected financial and economic environment; (ii) evaluations of risk in global asset markets; and (iii) other fundamental, valuation and psychological, technical and/or liquidity factors. What is the Investment Process for the Asset Allocation Model Portfolios? The portfolios employ a dynamic asset allocation process that combines long-term investment strategies (strategic asset allocation) with short-term portfolio adjustments (tactical asset allocation). Active vs. Passive An important consideration when determining investment selection is the choice between active and passive investments either for individual asset allocations or for the portfolio as a whole. Changing market cycles, the investor s time horizon and the volatility, liquidity and efficiency of individual asset classes can all affect the decision whether to choose active or passive investments for your portfolio. MORGAN STANLEY 2

3 Asset Allocation Model Portfolios (continued) Active Management An actively managed portfolio relies on the expertise of a portfolio manager to choose the investment s holdings in an attempt to outperform a predetermined benchmark over the course of a full market cycle. Most mutual funds are actively managed. Passive Management A passively managed investment is typically designed to mimic a benchmark in an attempt to match the benchmark s returns before expenses, not exceed them. Most exchange-traded funds (ETFs) are considered passively managed investments. Which Asset Classes can be Included in the Asset Allocation Model Portfolios? Cash/cash equivalents, fixed-income, US equity and international equity. What is the Eligible Universe of Securities for the Asset Allocation Model Portfolios? Open-end mutual funds, closed-end mutual funds, exchangetraded funds (ETFs) and exchange-traded notes (ETNs). What is the Security Selection Process for the Asset Allocation Model Portfolios? Eligible securities go through an in-depth research and evaluation process; key evaluation criteria can include investment strategy, track record, manager tenure and experience, expense ratios, tracking error, style purity, liquidity and relative strength rankings, amongst other factors. What are the Key Features of Investing in the Asset Allocation Model Portfolios? Diversification Flexibility In-depth investment due-diligence Account consolidation Strategic and tactical investment advice Disciplined portfolio rebalancing Comprehensive portfolio performance reporting What is the Portfolio Management Program? All portfolios are managed individually on a fully discretionary basis by Financial Advisors at Morgan Stanley who have been qualified by the firm to independently manage client assets based on training, experience and commitment to service. MORGAN STANLEY 3

4 Asset Allocation Model Portfolios Five models based on investment objective and risk tolerance Model 1 Income Strategy Model 2 Income and Strategy Model 3 Balanced Strategy Model 4 Moderate Strategy Model 5 Strategy Investment Objective Conservation of capital and current income are the primary investment objectives. Investment Objective Conservation of capital and current income are the primary investment objectives; a secondary investment objective is moderate growth of capital. Investment Objective Both current income and growth of capita are equally important investment considerations. Investment Objective of capital is the primary investment objective; secondary considerations are conservation of capital and current income. Investment Objective Long term growth of capital is the primary investment objective. Investor Risk Tolerance Can tolerate infrequent, very limited declines through difficult phases in a market cycle. Investor Risk Tolerance Can tolerate limited declines through difficult phases in a market cycle. Investor Risk Tolerance Can tolerate moderate declines through difficult phases in a market cycle. Investor Risk Tolerance Can tolerate two to three quarters of negative absolute returns through difficult phases in a market cycle. Investor Risk Tolerance Can tolerate more than one year of negative absolute returns through difficult phases in a market cycle. Cash/Cash Equivalents 5% Fixed Income 95% Cash/Cash Equivalents 4% Equity 30% Fixed Income 66% Cash/Cash Equivalents 3% Equity 50% Fixed Income 47% Cash/Cash Equivalents 2% Equity 70% Fixed Income 28% Fixed Income/ Cash Equivalents 1% Equity 99% Asset Allocation Key Cash & Cash Equivalents Money Market Funds Ultra Short Bond Funds Fixed Income Government Bonds Corporate Bonds Municipal Bonds Securitized Bonds Equity US Equities International Equities MORGAN STANLEY 4

5 Asset Allocation Model Portfolios ETF Strategy as of 02/03/14 Investment Sector & Security Name Symbol Investment Style Model 1 Model 2 Model 3 Model 4 Model 5 Income Income and Balanced Moderate Cash & Cash Equivalents Allocation 5% 4% 3% 2% 1% Money Market MNYMKT 5% 4% 3% 2% 1% Fixed Income Allocation 95% 66% 47% 28% 0% Vanguard Short-Term Corporate Bond ETF VCSH Short-Term Bond 15.0% 10.0% 7.0% 5.0% Vanguard Intermediate-Term Bond ETF BIV Intermediate-Term Bond 15.0% 10.0% 7.0% 5.0% ishares iboxx $ Investment Grade Corp Bond ETF LQD Corporate Bond 15.0% 10.0% 7.0% 5.0% PIMCO 0-5 Year High Yield Corporate Bond ETF HYS High Yield Bond 10.0% 8.0% 7.0% 3.0% ishares U.S. Preferred Stock ETF PFF Preferred Stock 10.0% 7.0% 5.0% 3.0% SPDR Barclays Capital Convertible Bond ETF CWB Convertible Bond 10.0% 7.0% 5.0% 3.0% PowerShares Senior Loan Portfolio ETF BKLN Bank Loan 10.0% 7.0% 5.0% 2.0% ishares JPMorgan USD Emerging Markets Bond ETF EMB Emerging Markets Bond 10.0% 7.0% 4.0% 2.0% Equity Allocation 0% 30% 50% 70% 99% US Equity 20.0% 33.0% 46.0% 65.0% SPDR S&P Dividend ETF SDY Large Value 7.0% 10.0% 12.0% 15.0% Guggenheim S&P 500 Pure ETF RPG Large 6.0% 10.0% 12.0% 20.0% Guggenheim S&P 500 Pure Value ETF RPV Mid Cap Value 4.0% 7.0% 12.0% 16.0% Vanguard Small-Cap ETF VBK Small Cap 3.0% 6.0% 10.0% 14.0% International Equity 10.0% 17.0% 24.0% 34.0% ishares MSCI Japan ETF EWJ Japan Stock 3.0% 4.5% 6.0% 8.0% Vanguard FTSE Europe ETF VGK Europe Stock 3.0% 4.5% 6.0% 8.0% ishares MSCI EAFE Small Cap ETF SCZ Foreign Small/Mid Blend 2.0% 3.0% 4.0% 6.0% PowerShares DWA Emerg Mkts Tech Lders ETF PIE Emerging Markets 2.0% 5.0% 8.0% 12.0% MORGAN STANLEY 5

6 Asset Allocation Model Portfolios Mutual Fund Strategy as of 02/03/14 Investment Sector & Security Name Symbol Investment Style Income Model 1 Model 2 Model 3 Model 4 Model 5 Income and Balanced Moderate Cash & Cash Equivalents Allocation 5% 4% 3% 2% 1% Money Market MNYMKT 5% 4% 3% 2% 1% Fixed Income Allocation 95% 66% 47% 28% 0% Lord Abbett Short Duration Income - Class F LDLFX Short-Term Bond 15.0% 11.0% 8.0% 5.0% DoubleLine Total Return I DBLTX Intermediate-Term Bond 15.0% 11.0% 8.0% 5.0% Loomis Sayles Strategic Income Y NEZYX Multi-Sector Bond 15.0% 10.0% 7.0% 4.0% PIMCO Income P PONPX Multi-Sector Bond 15.0% 10.0% 7.0% 4.0% AllianceBernstein High Income Adv AGDYX High Yield Bond 15.0% 10.0% 7.0% 4.0% Eaton Vance Floating Rate I EIBLX Bank Loan 10.0% 7.0% 5.0% 3.0% Templeton Global Total Return Adv TTRZX World Bond 10.0% 7.0% 5.0% 3.0% Equity Allocation 0% 30% 50% 70% 99% US Equity 23.0% 38.0% 53.0% 75.0% SunAmerica Focused Dividend Strategy A FDSAX Large Value 5.0% 8.0% 12.0% 15.0% American New Economy F2 NEFFX Large 3.0% 5.0% 7.0% 10.0% ClearBridge Aggressive I SAGYX Large 3.0% 5.0% 7.0% 10.0% Touchstone Sands Capital Select Y CFSIX Large 3.0% 5.0% 7.0% 10.0% AllianceBernstein Discovery Adv CHCYX Mid Cap 3.0% 5.0% 6.5% 10.0% Touchstone Mid Cap Y TMCPX Mid Cap Blend 3.0% 5.0% 6.5% 10.0% Hotchkis & Wiley Small Cap Value A HWSAX Small Cap Value 1.5% 2.5% 3.5% 5.0% Wasatch Small Cap WAAEX Small Cap 1.5% 2.5% 3.5% 5.0% International Equity 7.0% 12.0% 17.0% 24.0% Matthews Asia Inv MPACX Diversified Pacific/Asia 2.0% 3.0% 4.0% 6.0% Oakmark International I OAKIX Foreign Large Blend 2.0% 3.0% 4.0% 6.0% Wasatch International WAIGX Foreign Small/Mid 1.0% 2.0% 3.0% 4.0% Thornburg Developing World I THDIX Emerging Markets 2.0% 4.0% 6.0% 8.0% MORGAN STANLEY 6

7 Asset Allocation Model Portfolios ETF/Mutual Fund Strategy as of 02/03/14 Investment Sector & Security Name Symbol Investment Style Income Model 1 Model 2 Model 3 Model 4 Model 5 Income and Balanced Moderate Cash & Cash Equivalents Allocation 5% 4% 3% 2% 1% Money Market MNYMKT 5% 4% 3% 2% 1% Fixed Income Allocation 95% 66% 47% 28% 0% Vanguard Short-Term Corporate Bond ETF VCSH Short-Term Bond 7.5% 6.0% 4.0% 2.0% Lord Abbett Short Duration Income - Class F LDLFX Short-Term Bond 7.5% 6.0% 4.0% 2.0% DoubleLine Total Return I DBLTX Intermediate-Term Bond 10.0% 7.0% 5.0% 3.0% Vanguard Intermediate-Term Bond ETF BIV Intermediate-Term Bond 10.0% 7.0% 5.0% 3.0% Loomis Sayles Strategic Income Y NEZYX Multi-Sector Bond 12.5% 9.0% 6.0% 4.0% PIMCO Income P PONPX Multi-Sector Bond 12.5% 9.0% 6.0% 4.0% AllianceBernstein High Income Adv AGDYX High Yield Bond 7.5% 6.0% 4.5% 3.0% PIMCO 0-5 Year High Yield Corporate Bond ETF HYS High Yield Bond 7.5% 6.0% 4.5% 3.0% Eaton Vance Floating Rate I EIBLX Bank Loan 5.0% 2.5% 2.0% 1.0% PowerShares Senior Loan Portfolio ETF BKLN Bank Loan 5.0% 2.5% 2.0% 1.0% ishares JPMorgan USD Emerging Markets Bond ETF EMB Emerging Markets Bond 5.0% 2.5% 2.0% 1.0% Templeton Global Total Return Adv TTRZX World Bond 5.0% 2.5% 2.0% 1.0% Equity Allocation 0% 30% 50% 70% 99% US Equity 20.0% 33.0% 46.0% 65.0% SunAmerica Focused Dividend Strategy A FDSAX Large Value 3.5% 4.5% 5.5% 7.5% SPDR S&P Dividend ETF SDY Large Value 3.5% 4.5% 5.5% 7.5% Guggenheim S&P 500 Pure ETF RPG Large 3.0% 4.5% 7.0% 10.0% Touchstone Sands Capital Select Y CFSIX Large 3.0% 4.5% 7.0% 10.0% Guggenheim S&P 500 Pure Value ETF RPV Mid Cap Value 2.0% 4.0% 5.5% 8.0% AllianceBernstein Discovery Adv CHCYX Mid Cap 2.0% 4.0% 5.5% 8.0% Vanguard Small-Cap ETF VBK Small Cap 1.5% 3.5% 5.0% 7.0% Wasatch Small Cap WAAEX Small Cap 1.5% 3.5% 5.0% 7.0% International Equity 10.0% 17.0% 24.0% 34.0% Oakmark International I OAKIX Foreign Large Blend 3.0% 4.0% 6.0% 8.0% ishares MSCI Japan ETF EWJ Japan Stock 1.5% 2.5% 3.0% 4.0% Vanguard FTSE Europe ETF VGK European Stock 1.5% 2.5% 3.0% 4.0% ishares MSCI EAFE Small Cap ETF SCZ Foreign Small/Mid Blend 1.0% 1.5% 2.0% 3.0% Wasatch International WAIGX Foreign Small/Mid 1.0% 1.5% 2.0% 3.0% PowerShares DWA Emerg Mkts Tech Lders ETF PIE Emerging Markets 1.0% 2.5% 4.0% 6.0% Thornburg Developing World I THDIX Emerging Markets 1.0% 2.5% 4.0% 6.0% MORGAN STANLEY 7

8 Investing can be an intimidating prospect for many people. Today s capital markets are complex, and the thought of sifting through thousands of available investments can be overwhelming. Most investors simply do not have the time or experience to gather and analyze all of the data necessary to make informed investment decisions. In such situations, it may make sense to partner with an experienced professional who understands your financial needs and can dedicate the time and resources to help you meet them. For over 30 years, Christopher Eckert has been helping investors prepare for and navigate through significant life events and financial transitions. To learn more about how his wealth management process can help you meet the challenges these major life transitions pose to your financial security, please visit his website or call for a complimentary consultation. MORGAN STANLEY 8

9 This material is intended only for clients and prospective clients of the Portfolio Management program in the United States. It has been prepared solely for informational purposes only and it is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. Christopher Eckert is a Financial Advisor with Morgan Stanley Smith Barney and Portfolio Manager participating in the Morgan Stanley Smith Barney Portfolio Management program. The Portfolio Management program is an investment advisory program in which the client s financial advisor invests the client s assets on a discretionary basis in a range of securities. To learn more about the Portfolio Management Program, please contact your Morgan Stanley Smith Barney Financial Advisor. The Portfolio Management program is described in the applicable Morgan Stanley Smith Barney ADV Part 2, available at or from your Financial Advisor. Past performance of any security is not a guarantee of future performance. There is no guarantee that this investment strategy will work under all market conditions. Please contact your Financial Advisor for a complete listing of all transactions that occurred during the last twelve months. Holdings are subject to change daily, so any securities discussed in this profile may or may not be included in your account if you invest in this investment strategy. Do not assume that any holdings mentioned were, or will be, profitable. The holdings, sector weightings, portfolio traits and other data for an actual account may differ from that in this material due to various factors including the size of an account, cash flows within an account, and restrictions on an account. Top holdings, sector allocation, portfolio statistics and credit quality are based on the recommended portfolio for new investors as of the date specified. Holdings lists indicate the largest security holdings by allocation weight as of the specified date. Other data in this material is believed to be accurate as of the date this material was prepared unless stated otherwise. Data in this material may be calculated by Morgan Stanley or by third party providers licensed by the Financial Advisors or Morgan Stanley. Material in this presentation has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy, completeness or timeliness. Third party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide and are not liable for any damages relating to this data. Morgan Stanley Wealth Management has no obligation to notify you when information in this presentation changes. MORGAN STANLEY 9

10 Mutual Funds and Exchange Traded Funds are sold by prospectus only. The prospectus contains the investment objectives, risks, fees, charges and expenses, and other information regarding the mutual fund and variable annuity contract and its underlying investments, which should be carefully considered before investing. Prospectuses are available through your Financial Advisor. Read the prospectus carefully before you invest or send money Morgan Stanley Smith Barney LLC Member SIPC. MORGAN STANLEY 10