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Characteristics of the Stocks and Bonds in 7Twelve
In general terms, the Active 7Twelve portfolio consists of roughly 65% stocks and diversifying assets and approximately 35% fixed income. The overall cash allocation in the Active 7Twelve portfolio will tend to be higher than the expected 8.33% (based on each fund being 1/12th of the portfolio). This is because actively managed equity funds tend to have some percentage of their portfolio in cash. The passive 7Twelve portfolio uses exchanged traded products which are asset-class pure. As a result, it will have a smaller overall allocation to cash.
With a 65% equity/35% fixed income allocation, the 7Twelve portfolio qualifies as a balanced fund and thus meets the requirements as a qualified default investment alternative (QDIA) under the provisions of the 2006 Pension Protection Act (PPA). The other default investment vehicles (QDIA) are target date funds. For more information about QDIA investments, please read the article, "Bad Match" (Financial Planning, August 2009) and to learn more about target date funds, visit www.OnTargetIndex.com/.
Stocks
As of December 31, 2009, 22% of the equity funds (including US stock and non-US stock) in the Active 7Twelve portfolio held large cap stock with a "value" orientation. The term "cap" refers to market capitalization where market capitalization is computed by multiplying the current price of a company's stock by the number of shares that have been sold in the market. The term "value" indicates that a stock's price is undervalued relative to its true market worth.
Nineteen percent (19%) of the stocks in the Active 7Twelve portfolio were categorized as large cap "growth" stocks. Growth stocks tend to have higher price-to-earnings ratios and, as a result, are typically more volatile than "value" stocks. Growth stocks often have very high returns in the good years and discouraging low returns in the bad years. Finally, 21% of the stocks in the Active 7Twelve portfolio (as of December 31, 2009) were categorized as large cap "core" stocks. The term core refers to stocks that do not fit into the value or growth category.
In summary, as of year-end 2009, the equity portion of the Active 7Twelve portfolio was comprised of 62% large cap stocks, 21% midcap stocks, and 17% small cap stocks. The style orientation was 33% value, 33% core, and 34% growth, representing a well-balanced approach with a large cap bias (in keeping with the market cap of the aggregate world equity market) and a balanced exposure to value, core, and growth styles. The equity attributes of a portfolio such as the 7Twelve are dynamic through time but will generally be similar to the allocation as shown in the Equity Attributes table below.
Active 7TwelveTM Equity Attributes
(as of December 31, 2009)
|
Equity Style |
|
|
Value |
Core |
Growth |
TOTAL |
| Large Cap Equity |
22% |
21% |
19% |
62% |
| Mid Cap Equity |
6% |
7% |
8% |
21% |
| Small Cap Equity |
5% |
5% |
7% |
17% |
| TOTAL |
33% |
33% |
34% |
|
Bonds
Collectively, about 67% of the bond portion of the 7Twelve portfolio is categorized as having intermediate maturity, with the remaining 33% classified as long-term bonds.
7TwelveTM Fixed Income Attributes
(as of December 31, 2009)
|
Fixed Income Maturity |
|
Short |
Intermediate |
Long |
| High Quality |
— |
67% |
33% |
| Medium Quality |
— |
— |
— |
| Low Quality |
— |
— |
— |
The Active 7Twelve portfolio is a logical blend of
investment assets and investing styles.
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