Common use of Asset Allocation Strategies Clause in Contracts

Asset Allocation Strategies. The Asset Allocation strategies are risk-based allocations designed to adjust exposures to asset classes based upon expected economic conditions in both the U.S. and globally over a forecast period consisting of a rolling three-year outlook. These strategies are aligned across the spectrum of risk profiles and represent risk tolerances for the investment life stages of accumulation, protection, and distribution. In recognition of the fact that economies move through cycles, Confluence designs its Asset Allocation strategies to attempt to manage risk through changing economic conditions. This design is supported by seminal academic work from 1952 stating that expected risk and returns should be used as the capital market assumptions that underlie an effective asset allocation program. Accordingly, Confluence uses a rolling three-year time frame as its forecast period to seek to address dynamic opportunities and associated risks and incorporate flexible allocations that are modified each quarter to reflect appropriate exposures as expectations of economic conditions change. Each quarter, and in rare instances more frequently should conditions dictate, Confluence’s Asset Allocation Committee (“AAC”) convenes to review, study, and align the strategies in accordance with the AAC’s updated forecasts given the then-current economic environment and outlook. There are currently five risk-based strategies including Aggressive Growth, Growth, Growth & Income, Income with Growth, and Income, with the latter three having tax-exempt income versions available. In addition, there are currently four Target Date strategies: Target Date 2025, Target Date 2030, Target Date 2035, and Target Date 2040. Each Target Date strategy mirrors a risk-based strategy and will shift its allocation every five years to the adjacent risk-based strategy in a succession of increasingly conservative steps. The final shift to mirroring the risk- based Income strategy will occur in the same year as the name of the Target Date strategy. For example, the Target Date 2030 strategy currently mirrors the Growth & Income strategy. In 2025, its allocation will shift to mirror the Income with Growth strategy, and in 2030 it will be set to mirror the allocation for the Income strategy where it will remain for the ensuing years. All strategies are comprised exclusively of ETFs. The core of the strategies typically uses ETFs that mimic the performance of the targeted index for each asset class utilized. The strategies that include an element of income usually hold a material portion of their bond exposures in term maturity ETFs in the form of bond ladders. These vary in length and duration according to the respective strategy. Tax-exempt versions of the strategies with income as an element use ETFs consisting of municipal bonds for their fixed income allocations. Where appropriate, specialized ETFs are incorporated to overweight or underweight particular elements. These can be in the form of sectors, industries, and/or factors for U.S. equity exposures, regions, countries, and/or sectors for international equity exposures, and duration, sector, and/or defined maturity ETFs for bond exposures. In each instance where specialized ETFs are employed, the AAC seeks to ensure that they are in accordance with the desired positioning for the forecasted economic environment and assist in either enhancing opportunities or reducing risk.