Another year of positive returns is a gratifying way to mark the 29th anniversary of our Managed Income Strategy. We prefer to be modest about our accomplishments, but a performance history that encompasses nearly three decades with compelling risk-adjusted returns, warrants some celebration. The Strategy’s compound annualized return since inception exceeds 9% on a net basis, but of course, yearly performance can vary significantly.
Given today’s low interest rate environment, one should not assume the same performance going forward. Recent years have shown returns lower than 9%, although the Managed Income Strategy returned a very respectable 8.49% in 2020. However, last year’s performance compares favorably to key fixed-income benchmarks, as illustrated by the chart below—particularly given the violent drawdowns experienced during March 2020:
Performance of the Managed Income Strategy against BbgBarcUS Agg index and Ice BofA HY Master II TR Index. Calculations performed by Kensington Asset Management, LLC. Data sources from Tiingo, Bloomberg, and the St. Louis FRED.
We are most proud of the way the Strategy has navigated periods of market weakness. The Managed Income Strategy’s mandate is to achieve respectable returns relative to its long-only bond benchmarks, while keeping drawdowns of principal to within the tolerance level of a typical conservative client profile. In fact, since inception the maximum drawdown has been contained to under -5%, while weathering two of the worst bear markets in history, as well as numerous scary declines in between. This is particularly important to bear in mind at this juncture, when equity valuations are alarmingly elevated and bond yields near historic lows. Citibank’s Panic / Euphoria model has reached an all-time high, and similar high readings in the past would warrant caution. However, given the level of monetary and fiscal support available as well as increased risk appetite in a yield starved environment, we must also be aware that asset prices could continue to inflate to even higher levels.
In conclusion, most will agree that the current investment climate is fraught with many challenges. Be reassured that Kensington Asset Management will remain true to its systematic and quantitative process, always guarding against the unexpected. Our clients can take great comfort in our process which has strived to protect capital during times of market volatility and stress since 1992.
Introducing the Dynamic Growth Strategy
We are excited about the October 2020 launch of a new product, the Dynamic Growth Strategy, which offers investors a second strategy that embodies our active and risk-conscious investment philosophy but applied to the equity market. We believe this product is a compelling complement to the Managed Income approach because it seeks the higher potential reward of equities relative to fixed income in a risk-controlled manner. The Strategy has a six-year performance record that has delivered compelling risk-adjusted performance when compared to the S&P 500 Index.
Bruce P. DeLaurentis
Kensington Asset Management, LLC.