Managing client investments since 2007, Statera Asset Management[1] has generated nearly a decade’s-worth of investment management results. Chronicled in a series of individual total return histories, called composites, those past results may be viewed as representative of the market-relative performance of our style of investing. While not necessarily indicative of what returns we may expect to see in the future, we present our composites as demonstrative of the virtues of our investment philosophy and methodology.

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[1] Statera Asset Management is a division of Signature Resources Capital Management, LLC.

Risk is as much a part of investing as is return. Two sides of the same coin. In many cases, it is likely that individual tolerance for market risk will wane over time. Often due to age-induced pragmatism, we might like our portfolios to become less volatile as our demands for the security of the amount of those funds we have managed to accumulate grows. A progression in portfolio exposures from higher to lower overall expected portfolio risk can be labelled a “glidepath.” This glidepath expresses the past and potential future mix of exposures in the portfolio in order to set expectations for relative potential risk and return. In this month’s commentary, using the more recent past performance of U.S. equity and fixed income investments as a guide, we seek to show the relative potential risk and return impact of incorporating a glidepath into an investment process.

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All the talk about record market highs makes for a bit of discomfort. It can only be down from here, right? In truth, we can never be sure what the markets will do tomorrow, next week or next year. That in mind, we believe the proper approach seeks to invest according to an individual’s investment time horizon and comfort with market risk. With longer time horizons, in particular for those with continued future expected savings, even substantial near- and medium-term downturns may be resolved with time. And the prospects of missing out on additional gains may be seen as just as harmful to potential future wealth.

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The second quarter of 2017 proved fruitful as political trends in Europe were more favorable than some had feared, while aspirations for global macroeconomic growth remained positive atop seemingly more auspicious public policies. Risks both obvious and unknowable abound, but so do reasons for optimism with regard to the supports for potential further investment gains. Even so, such progress leads us to remind readers that returns do not come with guarantees and that now is as good a time as ever for an examination of portfolio allocations in the context of risk tolerances and investment time horizons.

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The Statera Investment Team maintains a vigilant watch over the mutual fund and exchange traded fund (ETF) landscape to ensure that we may maintain what in our view are the most relevant and cost-effective investment exposures within our portfolios. In that tradition, the Team has identified a range of exposures that provide more attractive positioning, a more favorable overall expense proposition or both. While we remain true to our long-term, risk-conscious, fully invested investment philosophy, we believe that both watchfulness regarding present portfolio exposures and mindfulness to identify potentially more advantageous portfolio positioning should continue to benefit our clients.

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On May 17, the S&P 500 Index dropped 1.82%. Day-after headlines were hardly subtle as breathless TV anchors whipped up anxiety like so much fresh cream. Compared to what’s proved a relatively tranquil year or so, the drop was noteworthy. But, while it might not have seemed such at the time, the day’s decline was not so far out of the ordinary as to be considered extreme in the context of the last near century’s-worth of market activity. This month’s commentary seeks to offer some of that longer-term context as a reminder that markets do sometimes experience substantial declines and that it’s been some time since we have experienced an onerous level of red. Though we may find solace in the equity market’s long-term positive bias, the shift in tenor highlights the need for regular reassessment of comfort with market risk.

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Experts agree: What tomorrow holds no one knows. Most experts, anyway. As we discussed last month, some folks appreciate more, some less, of the volatility that comes with an unknowable tomorrow. Still, market history has shown ways one can reduce the overall level of risk for a given level of return. A foundational tenet of our approach to investing, enhancing diversification, is one method to deploy while seeking to dampen the impacts of uncertainty in our day-to-day investment experience and potentially increase total return. For us, that means not only buying myriad U.S. stocks of all sizes and sectors. We also can seek diversity overseas. After a long spell of U.S. equity market outperformance, however, the chorus of investment isolationists has grown larger, their refrain louder. Nonetheless, while domestic stocks and bonds are likely to remain the core of our holdings for the foreseeable future, we continue to believe there are benefits to come from global-minded investing.

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It did not take long for the post-election euphoria to wane. Ostensibly created by the expectations for growth-oriented legislative and regulatory shifts, investor enthusiasm was met with the reality that the outlook for investible markets remains a bit muddy. The world is not as safe as it has ever been, equity markets are not as inexpensive as they ever have been and central bank policy, while suggesting stability going forward, still might be cause for disruption. And yet, while the jubilation may not be as widespread, investors do not seem to have turned to dismay. Indeed, first quarter performance proved rather fruitful and there are reasons to be a bit more positive from a fundamental standpoint as we head further into 2017.

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With investing come no guarantees. Nonetheless, a few reasonably sound principles so far have stood the test of time and form the core of our Investment Approach. The first element of our approach involves the mapping of combinations of broadly diversified global equity, fixed income and other exposures to specific risk-tolerance levels to formulate our range of investment solutions. Reiterating that return and risk are two sides of the same coin, this month we want to demonstrate how this component of our investment approach translates into the asset allocation decision.

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We’re never surprised to see several “growth” exposures in prospective client portfolios we review. Naturally, Growth sounds so much more interesting than Value. But these names, which we’ll define shortly, can be deceiving. In fact, the return series for Growth-oriented portfolios generally are not as attractive as those built to emphasize less-expensive stocks. What might seem a more fashionable label often ultimately isn’t so functional when it comes to meeting long-term financial goals. Function is our sole focus when building investment solutions.

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