The 3rd quarter was mixed for investment markets but finished positive for the NERT Model allocations. The quarter started off strong for equity markets with the S&P 500 +2.28% in July and +2.90% in August, but a volatile September -4.76% took away most of the gains. This isn’t uncommon as the third quarter historically is the worst performing quarter for the S&P 500. It was a negative quarter for bond funds globally as interest rates rose for the quarter with the threat of continued inflation and the continuation of a global recovery leading to the anticipation of future rate hikes. The markets that led the way for the quarter were real estate and commodities. This is reflected in the performance of the two NERT model allocation holdings: Principal US Property Account (+4.9%) and the PIMCO Commodity Real Return Strategy Fund (+7.3%).
Looking ahead to the 4th quarter, which we have stated on previous commentaries is historically the strongest quarter for equity markets, the focus will be on company earnings and how companies will adopt and adjust to labor shortages and global supply chain challenges. An eye will also be actively watching inflation. Inflation in 2020 led to a major increase in social security payments, the benefits that go out to approximately 70 million retired Americans. Starting in 2022 it will increase by 5.9%, the largest in years based on the Cost-of-Living Adjustment (COLA). Will inflation continue into the end of the year and into 2022 or will it be more transitory and settle down as the world catches up to supply chain constraints? This will be an important factor in investment markets and their performance as this year comes to a close and we head into 2022.
3rd QTR 1 YR 3YRS 5YRS
Stable Income 0.34% 7.54% 5.94% 4.57%
Conservative Income 0.39% 12.02% 7.55% 6.49%
Traditional Pension 0.23% 22.64% 10.24% 9.94%
Equity Oriented 0.61% 1.43% 11.52% 11.61%
NERT Model Allocation – Choices for every investor
The NERT model allocations are designed to help participants build diversified allocations to capture the major market sectors and a variety of management styles. They are offered to aid typical participant needs for diversified, risk-adjusted allocations. NERT rebalances allocations on a regular basis attempting to keep a consistent risk and asset posture. The allocations will maintain some exposure even in underperforming classes. Diversification, by definition, means not all assets can have positive performance every period. The NERT model allocations are designed to allow any investor to participate in proven ways to reduce risk and improve returns over longer periods.
As communicated in April2020, given the current limitations on withdrawals from the Principal U.S. Property Fund, we created model allocations that removed the Principal U.S. Property Fund. The quarterly and1-year return for these new allocations is listed above, however, a portion of the allocation remains within the Principal US. Property Account.
Andrew Casteel, CIO, CFP
Acorn Financial Advisory Services, Inc.