September 13, 2019
July ended with markets at near all-time highs, but after August began with the U.S. and China reiterating the threat of increased tariffs against each other we quickly saw a reversal. In addition to the volatility caused by deteriorating trade talks, the yield curve between the U.S. 2-Year and 10-Year Treasury Note inverted during August and this has been traditionally taken as a warning sign for future market conditions.
The S&P 500 Index had technical resistance at its 50-day moving average and markets saw a very choppy, range bound trading environment. The S&P 500 Index ended the month down -1.58%, the NASDAQ Composite Index declined -2.46%, and the Dow Jones Industrial Average Index lost -1.32%. With many investors fearing a potential near-term global recession as global growth remains stagnant the MSCI Emerging Markets Net Total Return Index ended August down -4.88% and the MSCI EAFE Net Total Return Index lost -2.59%.
The Stadion Tactical Defensive Fund began August with a fully invested portfolio in 100% equity. After the first few volatile days of August, the Dynamic Trend model experienced some weakness and the Fund sold 50% of its equity holdings, going to 50% fixed income and 50% equity. As the market’s longer-term trend has slowed its upward growth, our Cyclical Trend model saw a reduction in equity towards the end of the month. The Fund has been reallocated to a conservative allocation as the Fund ended the month in 75% fixed income and 25% equity. The Dynamic Trend model calls for 0% equity and the Cyclical Trend model calls for 50% equity suggesting we are currently experiencing a risk off market environment.
The Stadion Tactical Defensive Fund is a conservative equity fund seeking to participate in expanding market cycles and retains the ability to become 100% defensive if conditions deteriorate. Over a full market cycle, the Stadion Tactical Defensive Fund tends to have a conservative profile that combines two elements of trend following: a focus on longer-term cyclical trends (the core portfolio) and the balance of risk-mitigation and returns-seeking among shorter to intermediate trends (the satellite portfolio). The goal of these collaborative strategies is capital appreciation as measured across full market cycles.
In August, the Tactical Defensive Fund’s A-share returned -3.12% versus its benchmark of the Morningstar Moderate Target Risk Index of -0.86%.
To view the most recent performance for the Stadion Tactical Defensive Fund, click here.
The U.S. 2-Year Treasury Note is a debt obligation issued by the United States government that matures in 2 years.
The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months, and pays the face value to the holder at maturity.
Yield Curve is a line that plots interest rates of bonds, at specific point in time, which have equal credit quality but different maturity dates.
An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange.
The MSCI Emerging Markets Index consists of 23 economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI is a float-adjusted market capitalization index. As a total return index, it tracks the capital gains of a group of stocks over time and assumes reinvestment of any cash distributions.
The MSCI EAFE Net Total Index (Europe, Australasia, Far East) is an unmanaged free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. As a total return index it tracks the capital gains of a group of stocks over time and assumes reinvestment of any cash distributions.
The Morningstar Target Risk Index family is designed to meet the needs of investors who would like to maintain a target level of equity exposure through a portfolio diversified across equities, bonds and inflation-hedged instruments. The Morningstar Moderate Target Risk Index seeks approximately 60% global equity exposure.
One cannot invest directly in an index.
The Report’s commentary, analysis, opinions, advice, and recommendations represent the personal and subjective view of the author and are subject to change at any time without notice.
There are additional costs and potential risks associated with investing in domestic and international Exchange Traded Funds (ETFs). Investment in the Fund is subjective to investment risks, including, without limitation, market risk, management style risk, risks related to “fund of funds” structure sector risk, fixed income risk, tracking risk, risks related to ETF net asset value and market price, foreign securities risk, risks related to portfolio turnover and small capitalization companies’ risk. Since each Stadion fund is a “fund of funds”, an investor will indirectly bear fees ad expenses charged by the underlying ETFs and investment companies in which a Stadion Fund invests in addition to a Stadion Fund’s direct fees and expenses. More information about these risks and other risks can be found in the Fund’s prospectus.
There are risks associated with the potential investment of the Fund’s assets in fixed income investments which include credit risk, interest rate risk, and maturity risk among others. These risks could affect the value of investments of the Fund, possibly causing the Fund’s share price and total return to be reduced and fluctuate more than other types of investments. Additional information about fixed income risks can be fund in the Fund’s statement of additional information (“SAI”). Investment Objective: Seek long-term capital appreciation.
The Fund’s foreign investments generally carry more risks than funds that invest strictly in U.S. Assets including currency risk, geographic risk, and emerging market risk. Risks can also result from varying stages of economic and political development, differing regulatory environments’ trading days and accounting standards, and higher transaction costs of non-U.S. markets.
An investor should consider the investment objectives, risks, and charges and expenses of the Stadion Funds carefully before investing. The prospectus contains this and other information about the Funds. A copy of the prospectus is available by calling Stadion Funds directly at (866) 383-7636 or Stadion Money Management, LLC., the investment advisor, at (800) 222-7636. The prospectus should be read carefully before investing.
The Stadion Funds are distributed by ALPS Distributors, Inc. An investment in the Funds involves risk, including loss of principal.