MetLife Protected Growth Strategies SM First Quarter 2014 Portfolio Manager Commentary

Transcription

1 MetLife Protected Growth Strategies SM First Quarter 2014 Portfolio Manager Commentary This is the quarterly commentary report on the Protected Growth Strategy portfolios for the 1 st quarter of Commentary is as provided by the respective portfolio managers.

2 Managed Volatility AllianceBernstein Global Dynamic Allocation Portfolio F,H,Z, as provided by AllianceBernstein, LP During the first quarter of 2014, the Global Dynamic Allocation portfolio had solid positive performance and was slightly ahead of the Dow Jones Global Moderate Index net of fees. In the developed markets, conditions have been benign: equity volatility has largely been low, and interest rates also remained low. We maintained an overweight to return-seeking assets in the first quarter and had greater diversification than the index with allocations to real estate and commodities. We remained underweight bonds. However, stocks have appreciated rapidly, and recent economic data has been mixed. As a consequence, we have gradually taken down the risk in our portfolios towards neutral. The emerging markets have been going through a rough patch for quite a while now. We have chosen to hold very little emerging market equity. Market trends suggest continued growth. For example, in the U.S., revisions in growth expectations have led to a steeper bond curve and stocks have been very rewarding which is another indication of confidence in the growth outlook. There is also a high degree of consensus these trends will continue, as dispersion among economic forecasts is unusually compressed. Lack of divergence in views may carry the risk that any disappointment could lead to a sharp downward market response. We re not predicting such an occurrence, but this risk is a consideration in our portfolio management. Even after double-digit 2013 returns in the developed markets, valuations are still reasonable - at about their long-term historical averages. However, there are differences across regions: prices are richer in the U.S., as it has enjoyed the most buoyant recent market experience, and cheaper in the emerging markets. In the more normal market we expect to see in the period ahead, without provocatively low valuations or extraordinary monetary accommodation, investors will need to rely on other signals for direction. Among the key indicators will be data on global economic health where the read has become more mixed of late. While the potential for negative surprise exists, we need to be careful to take into account mitigating circumstances. For example, in the U.S. it s not clear how much is transient owing to severe winter weather. Relative performance was helped by allocations to REITs and commodities as they enjoyed strong returns after a poor An underweight to developed-market equities (U.S. and non-u.s.) was a modest contributor. The underweight to bonds did not materially impact portfolio returns. However, the portfolio carries extended duration exposure due to the interest rate swap; this was a benefit as interest rates fell.

3 BlackRock Global Tactical Strategies Portfolio F,FF,Z, as provided by BlackRock Financial Management, Inc. An overweight to developed markets contributed to performance as developed equities outperformed their emerging market counterparts during the quarter. Specifically, our overweight to France buoyed performance as the region continued to exhibit strong economic momentum relative to the rest of the Eurozone. French stocks outperformed both global and EAFE equities by roughly 2%. Our underweight to the United Kingdom contributed to returns with the FTSE 100 Index sliding over 1% over the quarter, underperforming broader European equities. The region is experiencing disinflation that has economists and investors calling for monetary stimulus to fend off potential deflationary pressures. Within equity sectors, our overweights to Healthcare and Technology positively impacted performance as the market priced in attractive earnings growth and profit margins. A modest overweight to Japan detracted from returns as the country underperformed other developed market equities. Our underweight to the Yen also weighed on performance over the quarter. In addition to concerns surrounding the strength of Japan s stimulus program and upcoming tax reforms, stress in the emerging markets drove up the price of safe haven currencies such as the Yen. Our underweights to commodities and REITs also detracted from performance during the quarter. Commodities rallied in the 1 st quarter, particularly in January and February. In March, we took profits on our long-held commodity underweight, moving toward a neutral position relative to the benchmark. This decision was partially influenced by an anticipated policy response in China which could lead to short-term volatility in asset classes with emerging markets exposure. REITs have been among the best performing asset classes YTD; lower rates have increased the attractiveness of REIT dividend yields while making borrowing more affordable. However, we remain wary of the volatility of the asset class, as well as its correlation to movements in interest rates. Within fixed income, our 0.5 year underweight relative to treasuries detracted from performance as the 10-year treasury yield fell 31 basis points over the quarter amid soft data and uncertainty over U.S. economic activity. We reestablished our short duration position in late January and have benefitted from a modest rise in rates driven by the Fed s hint at a potentially earlier rate hike. MetLife Balanced Plus Portfolio FF,Z, as provided by Pacific Investment Management Company, LLC (PIMCO) Following the market stability during the latter half of 2013, 2014 began with heightened volatility. Concerns over Fed tapering, mixed domestic economic data, emerging market contagion concerns, and the return of geopolitical risks were key reasons for investor risk aversion. Despite these concerns, most global equity markets recovered from early losses and finished the first quarter with modestly positive gains. Bond markets rallied amid investor concerns and renewed commitment from the Fed to remain accommodative for an extended period of time. While markets experienced bouts of volatility during the quarter, the Balanced Plus sleeve maintained, on average, an overweight to equities for the period. This overweight contributed to returns, given positive equity market gains. The Portfolio s fixed income collateral posted strong absolute and relative returns, benefitting from diversified interest rate and credit positions.

4 MetLife Multi-Index Targeted Risk Portfolio FF,Z, as provided by MetLife Investment Management, LLC Despite a small equity correction in January, realized volatility was low and the MetLife Multi-Index Targeted Risk Portfolio remained near the fully invested equity allocation during the first quarter. Interest rates fell and equities were up over the quarter with mixed economic news largely blamed on the severe winter weather experienced by most of the United States. U.S. mid cap stocks outperformed the U.S. large and small cap indices and U.S. equities outperformed international equity. The signal that drives the equity investment decision within the Portfolio is based on the realized equity volatility which we monitor daily. Our measure of volatility remained below average historical levels. Pyramis Managed Risk Portfolio F,FF,H,Z, as provided by Pyramis Global Advisors, LLC SM Overall, asset allocation had a relatively neutral impact on the Portfolio. The Portfolio s cash underweight, reflecting negative inflation-adjusted rates of return, contributed to performance as cash (Barclays 3-month T-Bill) was up 0.02% while U.S. equity (Dow Jones U.S. Total Stock Market) and bonds (Barclays U.S. Aggregate Bond) advanced 2.01% and 1.84%, respectively. Non-U.S. developed equity (MSCI EAFE) was up 0.70%. The negative impact of an overweight in non-u.s. developed equities and modest out-of-benchmark emerging markets equity position partially offset the cash underweight s positive contribution. A moderate out-ofbenchmark position in high yield debt was maintained as well. The Portfolio s investment grade debt position contributed to performance largely due to strong performance from the corporate bond fund holding. The Portfolio s interest rate overlay, constructed to deliver a 10-year treasury maturity, contributed to performance. Schroders Global Multi-Asset Portfolio F,Z, as provided by Schroders Investment Management North America, Inc. The Schroders portfolio s performance benefitted from our equity positioning in the first quarter of Global equities ended March flat, with investors largely focused on the continued tension between Russia and the West concerning Ukraine. Our position in U.S. equities benefitted our portfolio s total equity allocation. We continue to favor U.S. large caps, whose valuations look more attractive compared to small caps. In reaction to the escalation of tensions in Ukraine, we decreased our allocation to the Eurozone by 4%, which benefitted the portfolio. As cyclical stocks no longer offer the value they once did, we have added an allocation to companies that offer value through high cash-flow yield and distribute cash to shareholders via buybacks, dividends, and debt repurchases. Our fixed income allocation held steady as we continue to be underweight duration in favor of high yield. We expect further positive U.S. data will put pressure on the yield curve, so we will continue to trade tactically, as the market swings between a more hawkish Fed vs. more attractive valuations.

5 Balanced Risk AQR Global Balanced Risk Portfolio D,F,Z, as provided by AQR Capital Management, LLC In the midst of a challenging environment for global equity markets during the 1 st quarter, the Global Risk Balanced Portfolio outperformed its 60/40 benchmark. Within the equity asset class, U.S. and other developed equity markets were flat, while emerging equities slightly detracted. Within the inflation asset class, inflation linked bond prices rebounded during the 1 st quarter after a tough Commodities also performed well. Fixed income was the largest contributor, due to rising fixed income prices throughout the developed world. Invesco Balanced Risk Allocation Portfolio D,F,Z, as provided by Invesco Advisers, Inc. Strategic government bond exposure led results for the period as investors sought to avoid the volatility that equities experienced through the quarter. Commodities aided results over the quarter led by price appreciation across the soy complex and by sugar, which was driven by challenging weather in South America which is threatening crop yields. Precious metals have also contributed to results as prices rebounded smartly from steep losses in Equities were the weakest asset class for the quarter, pulling back after impressive gains last year. Japan, which led all developed markets last year, is leading to the downside this year as concerns over whether the stimulus policy in place under Abenomics is having the desired effects. Tactical results for the quarter were positive within bonds as overweights to all markets except Japan were met with favorable price action. Results in equities were challenged as overweights to all 6 markets detracted from results. In commodities, positive results from being underweight across the complexes early in the period were lost as commodity prices reversed strongly later in the period. The net result was tactical positioning in commodities detracting from results over the period. Effective January 6, 2014, enhancements were made to strategic weighting within the equity portion of the portfolio to the six markets in which we invest S&P 500, Russell 2000, FTSE 100, Euro Stoxx 50, Hang Seng and Topix. The Portfolio will continue to be risk-balanced across stocks, bonds and commodities, but now each equity market will be weighted based on its valuation (using a type of cyclically-adjusted price-to-earnings, or CAPE, ratio), to determine whether individual markets are attractively priced.

6 Momentum JPMorgan Global Active Allocation Portfolio F,H,Z, as provided by JPMorgan Investment Management, Inc. J.P. Morgan utilizes a systematic model in addition to fundamental research and qualitative analysis to identify price momentum and tactically adjust the Portfolio. Equity markets were quite choppy during the first quarter as investors confronted volatility in emerging markets, a brutally harsh winter in the U.S., a Russian occupation of Ukraine, and signals from the Federal Reserve that interest rates could rise sooner than expected. After a weak January and strong performance in February, global equity markets continued their positive streak in March. U.S. fixed income markets, on the other hand, gave back some gains after a strong start to the year. For the quarter, the Global Active Allocation Portfolio outperformed the Dow Jones Global Moderate Index. The Portfolio incorporates a duration overlay. This overlay contributed to overall return as Treasury rates decreased by approximately 30bps during the quarter. Commodities are held in the Portfolio. Not present in the Dow Jones Global Moderate Index, portfolio managers allocate strategically to commodities in order to potentially benefit from diversification, inflation protection, and exposure to global growth. This commodities position contributed to performance as the asset class was one of the strongest performers over the quarter. The Portfolio structurally holds a higher weight to international developed equities versus the Dow Jones Global Moderate Index, as we believe that investors will be rewarded in the long term for staying invested in a globally diversified portfolio. During the quarter, this structural position slightly detracted from performance as domestic equities outperformed international developed equities. We remain constructive on the macroeconomic landscape and favor equities in the portfolio. An environment of moderating inflation and an acceleration in growth is our base case expectation. These conditions, coupled with accommodative monetary policy, are typically supportive of equities and other risk-oriented assets.

7 The MetLife Protected Growth Strategies SM lineup is available only through certain MetLife variable products. Although you may not capture all the gains in an up market, the strategy is designed to help you avoid big losses in a down market. Z May invest in derivatives to obtain investment exposure, enhance return or protect the Portfolio s assets from unfavorable shifts in the value or rate of underlying investments. Because of their complex nature, some derivatives may not perform as intended, can significantly increase the Portfolio s exposure to the existing risks of the underlying investments and may be illiquid and difficult to value. As a result, the Portfolio may not realize the anticipated benefits from a derivative it holds or it may realize losses. Derivative transactions may create investment leverage, which may increase the volatility and may require liquidation of securities when it may not be advantageous to do so. F Invests in securities of foreign companies and governments, which involves risks not typically associated with U.S. investments, including changes in currency exchange rates; economic, political and social conditions in foreign countries; and governmental regulations and accounting standards different from those in the U.S. H Invests in high yield or junk bonds, which are issued by companies that pose a greater risk of not paying the interest, dividends or principal their bonds have promised to pay. Such bonds are especially subject to adverse changes in interest rates or other general market conditions, or to downturns in the issuers companies or industries. D This portfolio invests in a limited number of issuers. Poor performance of a single issuer will generally have a more adverse impact on the return of the portfolio than on a portfolio that invests across a greater number of issuers. FF The Portfolio is a fund-of-funds portfolio. Because of this two-tier structure, the Portfolio bears its own investment management fee and expenses, which includes the cost of the asset allocation services it provides, as well as its pro rata share of the management fee and expenses of each underlying portfolio. Without these asset allocation services, the contract owner s expenses would be lower. Pyramis is a registered service mark of FMR LLC. Used with permission. Investment Performance Is Not Guaranteed. Past performance is not an indication of future results. Certain broker/dealers do not make all of the Protected Growth Strategy portfolios available when you apply for a MetLife variable contract. If you would like to invest in one of the portfolios that is not available, you may do so after the variable contract has been issued. See prospectus for details. Variable life and annuity products are offered by prospectus only. 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