Portfolio Navigator funds Quarterly performance and commentary

Transcription

1 Navigator funds Quarterly performance and commentary June 30, AA VUL (7/18)

2 The Navigator funds Performance Quarter ending 6/30/18 3 month YTD 1 year 3 year 5 year Since Inception* (Class 2) % 0.15% 9.07% 6.95% 8.33% 8.91% With Maximum Fees % -3.85% 4.71% 5.50% 7.45% 8.36% Benchmark % 0.86% 9.77% 8.07% 9.49% (Class 2) % -0.16% 7.39% 5.94% 7.04% 7.72% With Maximum Fees % -4.16% 3.09% 4.51% 6.17% 7.18% Benchmark % 0.45% 7.87% 6.95% 8.19% Moderate Moderate (Class 2) % -0.53% 5.47% 4.92% 5.80% 6.57% With Maximum Fees % -4.51% 1.25% 3.50% 4.94% 6.04% Moderate Benchmark % -0.03% 5.91% 5.74% 6.82% (Class 2) % -0.79% 3.76% 3.84% 4.54% 5.25% With Maximum Fees % -4.75% -0.38% 2.44% 3.69% 4.73% Benchmark % -0.53% 3.96% 4.52% 5.43% (Class 2) % -1.22% 2.08% 2.88% 3.29% 4.06% With Maximum Fees % -5.17% -2.00% 1.49% 2.45% 3.54% Benchmark % -0.97% 2.10% 3.35% 4.10% *Inception date - May 7, 2010 Performance data shown represents past performance and is not a guarantee of future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data shown. Please call for performance data current to the most recent month-end. 1 Reflects fund fees and expenses; does not reflect charges or expenses imposed by the insurance company on subaccounts or contracts. See Annual Fund Operating Expenses in Performance Disclosures section. 2 Maximum Fees, in addition to Fund Fees, reflects a deduction of a 4% premium expense charge. This line is intended to demonstrate the effect that fees and expenses could have on performance, and is not intended to reflect actual fees and charges incurred by an investor in any particular variable insurance product nor does it reflect the additional fees associated with cost of insurance charges or optional insurance riders. 3 Composite indices are constructed to correspond with the broad asset class percentages in the current Navigator funds of funds, using the Russell 3000 Market Index (for equities), Morgan Stanley Capital International All Country World Index ex-u.s. (for international equities), Bloomberg Barclays Capital U.S. Aggregate Bond Index (for bonds), and Citigroup 3-month U.S. Treasury Bill Index (for treasuries).

3 Quarterly Performance Commentary by Columbia Threadneedle Investments Economic and Capital Markets Review 2Q 18 The Navigator series of funds benchmarks are composed of a domestic equity index (the all cap-oriented Russell 3000 Index), an international equity index (the MSCI EAFE Index) and a fixed income index (the Bloomberg Barclays U.S. Aggregate Bond Index). As we dig into the performance of equity and fixed income markets, we note that outperformance of U.S. related equity benchmarks stood out in the quarter. The Russell 3000 added a solid 3.89% (including dividends) and the index posted gains every month of the quarter. Tax-cut induced U.S. economic growth has outpaced much of the rest of the world, and the Federal Reserve s tightening cycle does not currently appear constrictive enough to derail the economy. The U.S. equity market broadly outperformed the MSCI EAFE Index and the MSCI Emerging Markets Index in the second quarter (-1.24% and -7.96%, respectively) and year-to-date (YTD). The U.S. Dollar Index jumped 4.9% in the second quarter as money flowed into the U.S. due to better growth prospects and repatriation of overseas cash held by multi-national companies. The small cap-focused Russell 2000 Index, a broad proxy for domestic small cap equity performance, rose by 7.75% during the quarter, ultimately generating some of the best performance across all global equity indices. Small caps get a smaller percentage of their profits from overseas and given the focus on trade tariffs, quantitative tightening policy measures by the U.S. Federal Reserve, and related increased inflationary pressures, these securities fared quite well. Conversely, emerging markets were one of the worst performing equity segments for investors during both the quarter and YTD period thus far. A combination of the Federal Reserve tightening cycle, trade war fears, and the strong U.S. dollar weighed on large emerging markets like China and South Korea. Broad fixed income returns were mostly negative for the quarter. The Bloomberg Barclays U.S. Aggregate Bond Index, a proxy for broad fixed income market returns, was down -0.16% during the period. Still, there were pockets of relative strength within fixed income markets during the quarter. U.S. corporate high yield bonds led all bond major indexes in the period, gaining over 1.03% as measured by the Bloomberg US High Yield Bond Index. Accelerating U.S. economic growth, less interest rate sensitivity, index composition, and a lack of corporate bond issuance contributed to high yield s outperformance. From an economic perspective, global growth has slowed, a trend that will likely continue over the next few quarters. The U.S. has moved ahead of many global economies as it is the only major economy where leading economic indicators suggest continued favorable trends over the near-term. In fact, U.S. real GDP growth could reach near the 4% level in the second quarter. The unemployment rate, which recently hit a level of 3.75%, stands at a 48-year low. Pressures from labor markets are broadly considered to be a factor that will lead to higher wages. The Employment Cost Index for private-sector workers a measure of wage growth rose at a 4% annualized pace in the first quarter. With rising wages also comes the expectation that workers will then spend much of the incremental income across the economy and inflation may rise as a result. Finally, even though the basic backdrop of the economy (housing, employment levels, broad-based corporate health and consumer wages) are in good shape, the Federal Reserve may need to hit the pause button on interest rate increases at some point next year if they want to extend the business cycle further.

4 Navigator Series Funds Performance Drivers in 2Q 18 Four of the five funds within the Navigator series posted a positive total return during the quarter. The most conservative offering in the series generated a slight negative return for the period. All five funds trailed their respective benchmarks. During the quarter the VP returned -0.29%, the VP returned 0.13%, the VP Moderate returned 0.24%, the VP returned 0.60% and the VP returned 0.97% (all figures are net of investment management fees but do not include annuity contract fees & related expenses). The underperformance versus fund benchmarks was primarily a result of challenged underlying manager performance within both international equity-oriented strategies (relative to the MSCI EAFE index, a component of the funds benchmarks) and U.S. large cap equity-oriented strategies (relative to the Russell 3000 index, also a component of the funds benchmarks). An underweight allocation directed at broad fixed income markets, represented by the Bloomberg Barclays U.S. Aggregate Bond Index, a component of the funds benchmarks, contributed favorably to performance during the quarter. Within the tactical sleeve of the funds exposure to equity index futures related to European equity markets served as a slight detractor from relative performance in the quarter. This was somewhat offset by tactical exposures coming from futures held in relation to U.S. equity markets and United Kingdom based equities. Some of the underlying funds that served as key contributors, as well as detractors, from relative results during the quarter are shown below (please note that an underlying fund being a contributor or detractor is not necessarily indicative of how it performed relative to its own benchmark). Not all funds shown below are held inside each fund at the same exposure weight. As a result, the impact of each contributor/detractor will vary by fund. Contributors CTI Morgan Stanley Advantage Fund CTI LA Capital Large Cap Growth Fund CTI CenterSquare Real Estate Fund Columbia U.S. Equities Fund Partners Small Cap Growth Detractors CTI MFS Value Fund Columbia Emerging Markets Fund CTI T. Rowe Price Large Cap Value Fund Columbia Contrarian Core Fund CTI Lazard International Equity Advantage Fund CTI DFA International Value Fund Source: Columbia Threadneedle Investments, as of 6/30/18

5 Market Outlook The headlines revolving around trade tariffs have caused a slight increase in market volatility, but in evaluating the situation, we believe the positive forces woven into the current fabric of markets still outweigh the potential challenge posed by the current realities of the tariff situation. While we are mindful that these dynamics should be watched carefully, it s our view that the immediate impact to growth from the protectionist policies is minimal. Any meaningful negative impact to earnings growth and consumer confidence would take some time to manifest itself. Therefore, we believe it would be premature to retreat from our constructive stance directed at risk assets (e.g. equities). Heading into the third quarter, within multi-asset portfolios overall, we are recommending investors maintain a moderate overweight to equity exposure. Economic data continues to be resilient with strong growth and sustained earnings momentum. A U.S. Administrative emphasis on deregulation continues to translate to positive stock returns. While equity valuations are on the higher end, they are not extended to an extreme level and have room to move higher. All of these factors support our moderate overweight thesis within the equity segment of multi-asset portfolios. From a size perspective, during the second quarter we did close a long-term small cap underweight, and we continue to observe small caps outperforming large cap stocks here in the United States equity market. Deteriorating signals from emerging markets and disappointing economic data from Europe yet again have caused us to maintain an underweight to core Europe within developed global equity markets and downgrade emerging markets from an overweight position to neutral. It should be noted that we are still attracted to the fundamentals and longterm outlook for emerging markets, however, over the short-term we believe a more cautious approach is warranted with respect to allocations directed at emerging markets. In the fixed income portion of multi-asset portfolios we are recommending that investors keep a moderate underweight allocation in place. We expect the rangebound pattern for treasury yields to persist, with the U.S. 10-year yield continuing to hover around 3.00%. We have a neutral view on Treasuries, but are cautious on spread-related fixed income assets. On balance, this supports a moderately negative view for fixed income assets. If the flattening of the U.S. yield curve persists, we could see yield curve inversion by the beginning of This is an important trend to monitor given the widespread association between an inverted yield curve and an economic recession. For portfolios where alternative investments are allowed within the investment design we retain our recommended allocation to alternatives at a modest overweight level. Commodities remain an area where we see current value and suggest a modest overweight. A common theme in the tariff discussion is the inflationary impact of some of the enacted or proposed tariffs. Rising inflation with still good global growth, or, decelerating global growth with still strong levels of inflation has historically has been a beneficial environment for commodities. Real Estate-related securities (REITs) remain neutral.

6 Blended benchmarks Moderate Russell 3000 Index 56.0% 46.0% 35.0% 24.0% 14.0% MSCI EAFE 24.0% 19.0% 15.0% 11.0% 6.0% Bloomberg Barclays Capital U.S. Aggregate Bond Index 20.0% 35.0% 50.0% 65.0% 80.0% Russell an index of the largest 3,000 U.S. stocks by market cap. MSCI EAFE - an index of developed international stock markets. Bloomberg Barclays Capital U.S. Aggregate Bond - an index of high-quality government and corporate bonds. Columbia Threadneedle Investments ( Columbia Threadneedle ) is the global brand name of the Columbia and Threadneedle group of companies. Insurance product fees will affect performance and can be found in the performance reports located at RiverSource.com > Insurance > Performance. Variable life insurance is a complex investment vehicle that is subject to market risk, including the potential loss of principal invested. There is no guarantee that investment objectives will be satisfied or that return expectations will be met. Asset allocation does not assure a profit or protect against a loss in declining markets. Please carefully consider the investment objectives, risks, charges and expenses of any variable fund and its related variable policy before investing. For variable fund and variable policy prospectuses, which contain this and other important information, call Please read the prospectuses carefully before you invest. Navigator: These funds are sold exclusively as underlying investment options of variable annuity and variable universal life insurance products offered by RiverSource Life Insurance Company and RiverSource Life Insurance Co. of New York (collectively, RiverSource Life). The funds are managed by Columbia Management Investment Advisers, LLC, an affiliate of RiverSource Life. RiverSource Life, Columbia Management and their affiliates may receive revenue related to assets allocated to the funds. Prior to allocating contract or policy values to a subaccount that invests in one of the funds, you should read the description contained in the applicable variable product and fund prospectuses. Index performance is provided for illustrative purposes only and does not reflect the fees and expenses of investing in variable products. Indices are not intended to represent specific investments. Investors cannot invest directly in an index. Investing in certain funds involves special risk, such as those related to investments in foreign securities, small- and mid-capitalization stocks, fixed income securities (especially high-yield securities), and funds which focus their investments in a particular sector. See each fund s prospectus for specific risks associated with the fund. riversource.com/insurance AA VUL (7/18) Annual Fund Operating Expenses (expenses you pay each year as a percentage of the value of your investment) Moderate Variable 1.08% 1.04% 0.99% 0.95% 0.92% RiverSource Distributors, Inc. (Distributor), Member FINRA. Issued by RiverSource Life Insurance Company, Minneapolis, Minnesota, and in New York only, by RiverSource Life Insurance Co. of New York, Albany, New York. Affiliated with Ameriprise Financial Services, Inc RiverSource Life Insurance Company. All rights reserved.