Equity
The sell-off was widespread at the end of February, and while large cap US equities held up better than their small and mid-cap brethren, international equities actually held up relatively well during the month. US stocks that seemed to be immune to the growing threat from the coronavirus finally reacted to what bond and oil prices had been signaling and rejoined global equities in negative territory. Our strategic overweight of emerging market equities insulated the Strategic Growth Model versus its benchmark that has a higher weight to international developed markets. The All-Weather Growth Model benefitted from this paradigm, and despite slightly underperforming its own benchmark, the tactical portion led to outperformance versus the Strategic Growth Model.
Fixed Income
The conservative portion of strategic allocations underperformed their respective benchmarks due to slight underperformance from the largest strategic income holding, the Pimco Active Bond ETF (BOND). Smaller positions with lower duration dragged on relative portfolio return as interest rates moved swiftly lower and spreads widened. Emerging market bonds suffered from a strengthening US dollar due to a flight to safety outweighing expectations for swift Federal Reserve intervention. This offset positive attribution from an underweight to international developed market sovereign bonds which continue to lag as global investors shun negative yielding debt.
Alternative
Falling inflation expectations led to the alternative segment underperforming the rest of the portfolio holdings. Even recently outperforming REITs went risk-off in the last week of February, joining Master Limited Partnerships (MLPs) and natural resource stocks to weigh on relative returns during the month. The multi-manager Litman Gregory Masters Fund, held in the All-Weather Models, slipping during the month also highlights the breadth of the late-month move across usually less-correlated asset classes.
