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Rob Williams: My name is Rob Williams, I’m the Director of Research at Sage Advisory. We are going to provide an overview of our multi-asset income, or MAI, strategy.  Our MAI strategy is for investors whose primary goal is to generate income, or yield, but who are also somewhat conservative in that they want their level of risk to be in the realm of fixed income, rather than equities. MAI is also for clients who want a strategy that is properly diversified and actively managed. So, how does Sage do MAI? Ours is a yield-focused, multi-asset strategy, managed with exchange-traded funds, or ETFs. Our goal is to provide clients with an attractive level of income without taking risk that far exceeds the bond market. If you think about the risk spectrum for a minute, you have fixed income on the far left as least risky from a volatility and downside standpoint, and then equities over on the far right as the riskiest. MAI is a position or two out from fixed income, somewhere in the conservative to moderate area. This means we access other markets for income besides traditional fixed income, but our MAI strategy will be much less risky than an equity-oriented portfolio. The benchmark is 80% core of fixed income and 20% equities, and we access four market segments to generate attractive income.

First, Core investment-grade fixed income. This would be Treasuries, investment grade corporate bonds or agency mortgage-backed securities, for example. We also access non-core fixed income. These are markets that are not traditional fixed income or not investment grade. Examples include high-yield bonds, emerging market debt and bank loans. The third market segment is what we call alternative markets. These are classified as neither fixed income or equities, somewhere in between. These are markets such as convertibles and preferred stocks. And then there’s more alternative sources of income, such as real estate investment trusts or master limited partnerships, which we call REITs and MLPs. Finally, we also access high-dividend equity markets and indices. 

Now let me provide you with a discussion on how this MAI strategy is managed to achieve attractive yield and how we manage risk while generating this income. Our process is very clear, well-structured, and a time-tested approach that has navigated many difficult markets over the last decade. It harnesses everything we do well at Sage – fixed income, ETF management, and tactical management. Our philosophy is to manage risk first, then income. No one wants a high-yield portfolio that acts like an equity portfolio when the market takes a dive.  We manage portfolios in a three-step process, which incorporates our macro view, our segment, or individual market, view, and our risk control. Our macro view is formed by our investment committee. This committee meets every two weeks to determine our tactical view, or outlook over the next 1 to 2 quarters. The second part of the process involve our market segment views. So, let’s say if we favor equities because of our macro view, this helps us determine which markets or sectors look most attractive within equities. Finally, our risk management brings it all together. Our risk management process has a couple layers. First, when we’re constructing a portfolio, we will have some predetermined constraints and guidelines. For MAI, we always have an allocation to core fixed income in the 20%-50% range, we limit equity exposure to 30%, and we also cap certain high-volatility markets, such as MLPs. Second, we optimize for the highest yielding income, without exceeding a suitable risk level. Lastly, ongoing management includes tracking this risk, making tweaks according to our views, and importantly, we stress test the portfolio under different scenarios, so we can see how much we could lose if our views are wrong. 

In the current market environment, we believe this strategy is particularly attractive as yields are low overall, interest rates are biased to move higher over the medium term, and equity valuations are very high. This makes it a good time to have a wider opportunity set to achieve more yield than traditional fixed income, but it also applies a risk-centric, active management approach that ensures portfolio stability. I thank you for your time and please reach out to your Sage contact to learn more.

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Disclosures: Sage Advisory Services is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. This podcast is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.