Further diversification means exploring the alternatives.
Today's economic landscape is forcing us to reconsider what we thought we knew about diversification1. We've discovered that traditional asset classes can behave similarly in periods of economic volatility, which historically has been bad when they're trending downward. But alternative asset classes and strategies frequently behave differently from traditional assets under the same market conditions. That means adding alternatives could help you diversify to manage portfolio risk.
Diversifying beyond traditional equities to potentially prepare for rising interest rate and inflationary environments.
Alternative assets invest in areas such as global real estate, commodities, and infrastructure, which offer exposure beyond the traditional equity portion of your portfolio. This gives you the opportunity to further diversify your portfolio, because alternative assets typically perform well in inflationary environments. When preparing for any market cycle, it’s important to consider evolving portfolios by adding alternative assets.
Seeking to achieve positive returns in various markets and reduce volatility.
During periods where the economy is facing a decline, or interest rates are low, portfolio growth may still be an important investing objective. In a global economy where uncertainty may be here to stay, it’s important to consider incorporating alternative strategies that seek opportunities to generate results similar to bonds. Various management styles and strategies such as long/short, arbitrage, and managed futures can help prepare for market downturns.
View our lineup of alternative investments.
|1||Diversification does not assure a profit or protect against loss in a declining market.|
Standard deviation is known as "historical volatility" and is used to gauge the amount of expected volatility or risk.* So, the lower the standard deviation percentage, the lower the risk. See what can happen to risk and returns when exposure to alternatives is increased.
Portfolio comparison from 12/31/1994-12/31/2014, and provided by Lipper, a Thomson Reuters Company. This chart is for illustrative purposes only and is not indicative of any investment. No assumptions should be made that similar asset allocations will be profitable, suitable, or perform as indicated above. Allocations and their percentages may change based on an individual investor's needs. The indices used to determine return and risk figures for the portfolio shown are as follows: Stocks=40%/30%/15%/15% mix of S&P 500® Index, MSCI EAFE® Index, MSCI® Emerging Markets Index and Russell 2000® Index; Bonds=50%/25%/25% mix of Barclays Aggregate Bond Index, BofA ML US HY Master II Constnd TR, JPM EMBI Global Diversified Index; Alternatives Assets=equal mix of Bloomberg Commodity Index and the FTSE EPRA/NAREIT Developed Index; and Alternative Strategies=equal mix of Credit Suisse Global Macro Hedge Fund Index, Credit Suisse Long/Short Equity Hedge Fund Index, Credit Suisse Multi Strategy Hedge Fund Index, Credit Suisse Event Driven Hedge Fund Index, and Credit Suisse Managed Futures Hedge Fund Index. The performance of the alternative allocation does not represent the actual performance of the portfolio or the current investment allocation of the portfolio. Indices are unmanaged and are not available for direct investment. Indices do not reflect fees and expenses associated with the active management of a portfolio. Past performance is no guarantee of future results.
The following chart illustrates how asset classes typically perform differently from each other over time. Investing in a wide range of traditional and alternative asset classes can improve diversification and reduce overall portfolio volatility.
Diversification does not assure a profit or protect against loss in a declining market.
|Bonds (Barclays U.S. Aggregate Bond Index) 10-yr Avg: 4.71%. Composed of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate, and mortgage-backed securities between one and 10 years.|
|Commodities (Bloomberg Commodity Index) 10-yr Avg: -1.86%. Designed to be a highly liquid and diversified benchmark for the commodity futures market and is composed of futures contracts on 19 physical commodities.|
|Convertible Arbitrage (Credit Suisse Cnvrt Arb Hedge Fund USD) 10-yr Avg: 4.06%. A subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of convertible arbitrage funds.|
|Covered Calls (CBOE S&P 500(R)Buywrite (BXM) 10-yr Avg: 4.77%. Designed to reflect the return on a portfolio that consists of a long position in the stocks in the S&P 500 Index and a short position in an S&P 500 (SPX) call option.|
|Emerging Market Debt (JPM EMBI Global Diversified Index) 10-yr Avg: 7.78%. Designed to limit asset-weighting of larger debt issuers, the index is intended to measure the performance of emerging market bond issuances from around the world.|
|Emerging Market Equity (MSCI(R) Emerging Markets Index) 10-yr Avg: 8.78%. Designed to measure equity market performance in global emerging markets, is a float-adjusted market capitalization index, and consists of indices in 26 emerging economies.|
|Event Driven (Credit Suisse ED Rsk Arb Hedge Fund USD) 10-yr Avg: 3.81%. A subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of risk arbitrage funds.|
|Global Infrastructure (Dow Jones Brookfield Global Infrastructure TR) 10-yr Avg: 11.67%. Measures the stock performance of companies that exhibit strong infrastructure characteristics, defined as those that derive 70% or more of their cash flows from infrastructure lines of business.|
|Gold Equity (FTSE Gold Mines TR) 10-yr Avg: -3.11%. Designed to reflect the performance of the worldwide market in the shares of companies whose principal activity is the mining of gold.|
|International Equity (MSCI EAFE(R) Index) 10-yr Avg: 7.22%. Comprises 21 MSCI country indices, representing the developed markets outside of North America. The country indices included are those from Europe, Australasia, and the Far East.|
|Listed Private Equity (S&P(R) Listed Private Equity TR) 10-yr Avg: 4.05%. Comprising 30 leading listed private equity companies, the index is designed to provide tradable exposure to the leading publicly listed companies in the asset class.|
|Managed Futures (Credit Suisse Managed Futures Hedge Fund Index) 10-yr Avg: 4.29%. An asset-weighted index that seeks to measure the aggregate performance of managed futures funds.|
|Natural Resources (S&P North American Natural Resources Sector TR) 10-yr Avg: 7.65%. A modified capitalization-weighted index of U.S. traded Natural Resources equity securities.|
|Real Estate (FTSE EPRA/NAREIT Developed Index) 10-yr Avg: 6.90%. Tracks the performance of listed real estate companies and REITs worldwide.|
|U.S. Equity (Russell 3000(R) Index) 10-yr Avg: 7.94%. Measures the performance of the 3,000 largest U.S. companies—approximately 98% of the investable U.S. equity market.|
Dow Jones® and the Dow Jones branded indexes identified herein are trade and/or service marks of CME Group Index Services LLC (“CME Indexes”), its affiliates, and/or licensors, as the case may be, and have been licensed for use by Jackson National Life Insurance Company. The product(s) referenced is/are not sponsored, endorsed, sold or promoted by CME Indexes, its affiliates, and/or licensors, or their respective affiliates, and such parties make no representations or warranties, express or implied, regarding the advisability of trading in the product(s).
This example is for illustrative purposes only and is not representative of the future performance of any particular product. Past performance is no guarantee of future results. The indexes described are unmanaged and not available for direct investment. Source: Lipper, a Thomson Reuters Company, as of 12/31/2013. All index returns portray total return data.
Traditional asset classes and alternatives have a wider variety of risk and return characteristics than you might think.
As more alternatives become available to more investors, it’s only natural to assume something new is inherently riskier. But when we look at the risk/return profiles of various asset classes represented here by market indexes, this hasn’t always been the case.
|1||Lipper, a Thomson Reuters Company. Performance shown is that of the benchmark indices from 12/31/2004 to 12/31/2014 and represents past performance, which is no guarantee of future results. Index performance does not reflect the deduction of contract charges, sales charges, or management fees and expenses, and is not meant to represent the performance of any investment. The performance of any investment will differ from the performance of the indices shown. The indices are unmanaged and not available for direct investment. Standard deviation is a statistical measure of volatility that represents the degree to which an investment’s performance has varied from its average performance over the period. The higher the number, the more volatility is to be expected.|
|2||Diversification does not assure a profit or protect against loss in a declining market. Portfolios that have a greater percentage of alternatives may have greater risks, especially those including arbitrage, currency, leveraging, and commodities. This additional risk can offset the benefit of diversification.|
|Absolute Return (HFRX Absolute Return Index): The HFRX Absolute Return Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies, including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage.|
|Commodities (Bloomberg Commodity Index): Designed to be a highly liquid and diversified benchmark for the commodity futures market and is composed of futures contracts on 19 physical commodities.|
|Convertible Arbitrage (Credit Suisse Convertible Arbitrage Hedge Fund Index): A subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of convertible arbitrage funds. Managers typically build long positions of convertible and other equity hybrid securities and then hedge the equity component of the long securities positions by shorting the underlying stock or options.|
|Covered Calls (CBOE S&P 500 BuyWrite Index): Designed to reflect the return on a portfolio that consists of a long position in the stocks in the S&P 500 index and a short position in an S&P 500 (SPX) call option.|
|Domestic Equity (S&P 500 Index): An index of 500 stocks chosen for market size, liquidity, and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe.|
|Global Infrastructure (Dow Jones Brookfield Global Infrastructure Index): Measures the stock performance of companies that exhibit strong infrastructure characteristics. Index components are required to have more than 70% cash derived from infrastructure lines of business.|
|Global Macro (Credit Suisse Global Macro Hedge Fund Index): Seeks to measure the aggregate performance of global macro funds. Global macro funds typically focus on identifying mispricings in equity, currency, interest rate, and commodity markets. Managers typically employ a top-down global approach to analyze how political trends and global macroeconomic events may affect the valuation of financial instruments. Profits can be made by correctly anticipating price movements in global markets and having the flexibility to use a broad investment mandate, with the ability to hold positions in practically any market with any instrument. These approaches may be systematic trend–following models, or discretionary in nature.|
|Gold (FTSE Gold Mines Index): Designed to reflect the performance of the worldwide market in the shares of companies whose principal activity is the mining of gold. It is intended to supply gold investors and analysts with an accurate reflection and comprehensive coverage of the global gold markets. The index series encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 51% or more of their revenue from mined gold.|
|Listed Private Equity (S&P Listed Private Equity Index): Comprised of 30 leading listed private equity companies, the index is designed to provide tradable exposure to the leading publicly listed companies in the asset class.|
|Long/Short (Credit Suisse Long/Short Equity Hedge Fund Index): Seeks to measure the aggregate performance of long/short equity funds. These funds typically invest in both long and short sides of equity markets, often with a specific focus on certain sectors, regions, or market capitalizations. Managers typically have the flexibility to shift investment styles, such as from value to growth, from small to medium to large capitalization stocks, and from net long to net short. Managers can trade equity futures and options as well as equity-related securities and debt. They can also build portfolios that are more concentrated than traditional long-only equity funds.|
|Managed Futures (Credit Suisse Managed Futures Hedge Fund Index): An asset-weighted index that seeks to measure the aggregate performance of managed futures funds.|
|Market Neutral (HFRX Equity Market Neutral Index): These strategies employ sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities/select securities for purchase and sale.|
|Merger Arbitrage (Credit Suisse Event Driven Risk Arbitrage Hedge Fund Index): A subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of risk arbitrage funds. These funds typically attempt to capture the spreads in merger or acquisition transactions involving public companies after the terms of the transaction have been announced.|
|Natural Resources (S&P North American Natural Resources Index): A modified capitalization weighted index of U.S. traded Natural Resources equity securities.|
|Real Estate (FTSE EPRA/NAREIT Developed Index): Tracks the performance of listed real estate companies and REITs worldwide. Dow Jones and the Dow Jones branded indexes identified herein are trade and/or service marks of CME Group Index Services LLC ("CME Indexes"), its affiliates, and/or licensors, as the case may be, and have been licensed for use by Jackson National Life Insurance Company. The product(s) referenced is/are not sponsored, endorsed, sold or promoted by CME Indexes, its affiliates, and/or licensors, or their respective affiliates, and such parties make no representations or warranties, express or implied, regarding the advisability of trading in the product(s).|
A variable annuity is a long-term, tax-deferred investment designed for retirement, involves investment risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½.
Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses, which are contained in the same document, provide this and other information. Please contact your representative or the Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.
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Equity—The price of equity or equity-related securities will fluctuate and can decline and reduce the value of a portfolio investing in these securities.
Forward and Futures Contracts—Successful use of futures and forwards is dependent upon the subadvisors’ skill and experience with those instruments and include risks such as imperfect correlation, potentially unlimited losses, inability to predict movements or direction, counterparty default, and margin requirements resulting in a disadvantageous sale.
Merger Arbitrage—Merger arbitrage strategies seek to exploit the difference in market prices of publicly traded equities at the announcement and throughout the process of corporate merger and acquisition events.
Short Sales—A short sale may be affected by selling a security that the fund does not own. If the price of the security sold short increases, the fund would incur a potentially unlimited loss; conversely, if the price declines, the fund will realize a gain.
Diversification does not assure a profit or protect against loss in a declining market. Portfolios that have a greater percentage of alternatives may have greater risks, especially those including arbitrage, currency, leveraging, and commodities. This additional risk can offset the benefit of diversification.
Alternative investment strategies such as leveraging, arbitrage and commodities investing are subject to greater risks and volatility than more traditional investment offerings. Although asset allocation among different asset categories generally limits risk and exposure to any one category, the risk remains that management may favor an asset category that performs poorly relative to the other asset categories. The subaccounts expect to invest in positions that emphasize alternatives or nontraditional asset classes or investment strategies and, as a result, are subject to the risk factors of those asset classes. Some of those risks include general economic risk, geopolitical risk, commodity-price volatility, counterparty and settlement risk, currency risk, derivatives risk, emerging markets risk, foreign securities risk, high-yield bond exposure, noninvestment-grade bond exposure commonly known as "junk bonds," index investing risk, industry concentration risk, leveraging risk, market risk, prepayment risk, liquidity risk, real estate investment risk, sector risk, short sales risk, temporary defensive positions, and large cash positions.
The investment companies (subaccounts) offered in Elite Access are registered as investment companies under the Investment Company Act of 1940, as amended (“1940 Act”), and their shares are registered under the Securities Act of 1933, as amended. There are many differences among 1940 Act registered subaccounts and unregistered hedge funds, including but not limited to liquidity, restrictions on leverage and diversification, fund reporting and transparency, fees, and availability.
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