Author: Matthew Pierce
Covestor model: Island Light Capital Income Portfolio
Disclosure: None
The Island Light Global ETF Portfolios are fully-diversified core portfolios designed to participate in global economic equity growth with downside protection from excessive volatility.
Enlightened investing integrates proven investment technology, disciplined investment process, efficient funds and our breadth of experience with sound judgment to create cost effective, risk-controlled and transparent portfolios for the disciplined investor.
The Island Light Capital Income ETF Portfoliois designed for long term investors seeking current income and some potential for long term capital growth. The portfolio is targeted to a benchmark allocation of 60% fixed income investments and 40% global equities while also investing in alternative asset classes.
The Island Light Capital Balanced ETF Portfolio is designed for long term investors seeking current income and long term capital growth. The model is targeted to a benchmark allocation of 60% global equities and 40% fixed income investments while also investing in alternative asset classes.
The Island Light Capital Growth ETF Portfolio is designed for long term investors seeking long term capital growth with some current income. The portfolio is targeted to a benchmark allocation of 75% global equities and 25% fixed income investments while also investing in alternative asset classes.
Enlightened Investing is a stable approach to portfolio management, emphasizing quantitative principles and proven investment practices, while accentuating asset allocation as the most important determinant of long term success in investment planning.
Our portfolios capitalize on the fact that markets are relatively macro-inefficient, allowing value to be added at the asset class level using world-class investment technology, superior investment judgment and a disciplined investment process.
We establish a base investment portfolio objective, defined by the ratio between fixed income and global equities, and periodically rebalance to this objective. Intelligent rebalancing provides stability and maintains the target macro allocations. We diversify across investment classes that encompass all the major sources of global economic growth.
We develop capital market estimates using modern statistical techniques that combine our economic and investment views with observations of past market behavior. We then apply the scientifically-proven technique of resampled efficiency to construct a set of efficient portfolios that incorporate our understanding of market structure with the new capital market estimates.
This patented approach mitigates the risks of uncertainty in information and outcomes, leading to greater diversification and stability of process. Systematic rebalancing incorporates recent market activity, economic factors and expected trading costs to benefit our focus of maximal returns at any given level of risk.
The Island Light Capital Global ETF Portfolios typically hold between 12- 15 Exchange Traded Funds, selected for low expense ratios, seasoning, liquidity and tracking to important and meaningful benchmarks.
The combined expense ratios of the underlying holdings range from 0.20% to 0.23%, well below the industry average. The Portfolios have betas versus the US equity market of approximately 0.46 (Income), 0.70 (Balanced) and 0.85 (Growth) and are designed to have turnovers of between 20 and 30% annually.
The quarter ended March 31 was exceptionally strong for global equities as equities returned 12.1% on average. US markets were up 12.9% as measured by the Russell 1000 index. Fixed income had a tepid quarter with fears of interest rate increases and reduction of the Federal Reserve quantitative easing program.
We remain cautiously optimistic with regard to equities and somewhat neutral on fixed income investments, although high-credit fixed income remains relatively attractive. Despite negative real interest returns in short term US Treasuries, intermediate-term US Treasuries are an important diversifying asset in the portfolio.
At quarter end, the equity portion of the Balanced portfolio was positioned to have a relative underweight in developed international markets and overweight in small capitalization US and emerging market equities. The fixed income allocations were market weighted with modest overweights in intermediate US Treasuries and high yield bonds.
We also hold a weighty position in gold as a risk-diversifying asset. At quarter end we reduced exposures to REITs and longer duration fixed income and introduced small cap international stocks to the portfolios.
The Balanced benchmark index return for the quarter ended March 31 was 7.4%, with global equities (50% Russell 1000, 50% MSCI ACWI ex US) returning a robust 12.1% and the fixed income portion returning 0.1%.
The Island Light Capital Balanced model composite return for the quarter was 7.8%, gross of management fees and net of transaction costs.
At quarter end, the equity portion of the Income portfolio was positioned to have a relative underweight in developed international markets and overweight in small capitalization US and emerging market equities.
The fixed income allocations were market weighted with modest overweights in intermediate US Treasuries, short term corporate bonds and high yield bonds. We also hold a weighty position in gold as a risk-diversifying asset. At quarter end we reduced exposures to REITs and longer duration fixed income.
The Income benchmark index return for the quarter ended March 31 was 4.9%, with global equities (50% Russell 1000, 50% MSCI ACWI ex US) returning a robust 12.1% and the fixed income portion returning 0.1%.
The Island Light Capital Income model composite return for the quarter was 5.1%, gross of management fees and net of transaction costs.
At quarter end, the equity portion of the Growth portfolio was positioned to have a relative underweight in developed international markets and overweight in small capitalization US and emerging market equities. The fixed income allocations were market weighted with modest overweights in intermediate US Treasuries and high yield bonds.
We also hold a weighty position in gold as a risk-diversifying asset. At quarter end we reduced exposures to REITs and longer duration fixed income and introduced small cap international stocks to the portfolios.
The Growth benchmark index return for the quarter ended March 31 was 9.2%, with global equities (50% Russell 1000, 50% MSCI ACWI ex US) returning a robust 12.1% and the fixed income portion returning 0.1%. The Island Light Capital Balanced model composite return for the quarter was 9.9%, gross of management fees and net of transaction costs.
