KENSINGTON SPOTLIGHT SERIES: THE DEFENDER STRATEGY
Monthly Market Commentary
By Kensington Asset Management Team
NAVIGATING UNCERTAINTY WITH AN ADAPTIVE ALL-SEASON STRATEGY
The core objective of an adaptive “all-season” investment philosophy is to build portfolios capable of navigating the distinct phases, or “seasons,” of the economic cycle – from robust growth (“summer”) to slowdown or recession (“autumn” and “winter”), and through periods of changing inflation (“spring” transitions). Markets are dynamic, and different asset classes can potentially thrive in different economic seasons. Equities typically lead during growth phases, government bonds often provide stability during downturns or deflationary scares, while commodities and gold may serve as valuable hedges during inflationary periods.
The Limits of Fixed Allocations in Shifting Seasons
A traditional, fixed allocation approach, while offering basic diversification, can leave investors exposed when the economic season shifts or during periods of market stress. For instance, unexpected events like heightened geopolitical tensions or sudden policy changes, such as the tariff discussions that emerged this April, can significantly impact asset performance and signal a potential change in the prevailing market climate.
Market Reaction to Tariff Concerns: A Change in the Weather
The recent focus on potential new tariffs introduced a layer of uncertainty into the markets this April, acting like a sudden storm within the broader economic season. We observed related market reactions:
- Equities Under Pressure: Concerns about tariffs impacting international trade, corporate earnings, and global growth weighed on equity markets, particularly those sensitive to global economic conditions.
- Increased Demand for Safe Havens: In times of uncertainty, investors often seek shelter in assets perceived as safer. This increased demand for high-quality government bonds (often favored in economic “winter”) and potentially gold, historically viewed as a store of value during instability.
- Commodity Volatility: Specific commodities reacted based on anticipated shifts in supply, demand, and trade flows resulting from the proposed tariffs, causing volatility irrespective of the broader season.
The Advantage of an Adaptive All-Season Strategy:
This is precisely where an adaptive all-season strategy may demonstrate its value. Instead of remaining static, our approach continuously analyzes market signals – primarily trends and risk levels – across these broad asset classes to understand the current economic season and anticipate potential shifts.
- Proactive Risk Management: Adaptation allows the portfolio to respond defensively to emerging risks, like those posed by trade disputes, regardless of the dominant economic season, rather than simply absorbing the full impact.
- Capitalizing on Seasonal Shifts: It enables the portfolio to pivot towards asset classes suited for the prevailing or emerging economic environment.
- Disciplined & Objective: By relying on data-driven signals, the strategy avoids emotional reactions to headlines and focuses on quantifiable market behavior indicative of the underlying economic season and risk levels.
Events like the recent tariff discussions highlight the unpredictable nature of markets and how quickly conditions can change. An adaptive all-season strategy is designed for precisely these types of environments. By systematically adjusting allocations based on evolving market trends and risks across global equities, bonds, and real assets, we aim to navigate the different economic seasons, manage downside potential during transitions or unexpected storms, and position the portfolio to help perform resiliently, whatever climate or geopolitical events lie ahead. This disciplined adaptability can be fundamental to help achieve a more consistent long-term outcomes through all market cycles.
The Defender Strategy has been shifting its allocation out of US equities and into defensive assets in response to growing market uncertainty. As illustrated in the accompanying chart, over the past two months we have increased exposure to intermediate-term Treasuries, gold , and commodities. These moves reflect a strategic reallocation away from risk assets and into areas traditionally associated with capital preservation and inflation hedging. This transition is not a prediction, but a reaction to observable shifts in market behavior—namely, rising volatility, softening equity momentum, and heightened macroeconomic concerns tied to trade tensions. The adjustments underscore our commitment to a disciplined, trend-responsive approach that emphasizes risk management and resilience. In uncertain times, maintaining the flexibility to adapt isn’t just a feature of the strategy—it’s the foundation.
Monthly Portfolio Allocation Trend (End of Month)
Disclaimers:
An “all season” investment strategy aims to perform well in various market conditions through diversified asset allocation. However, there is no guarantee of achieving positive returns in all market environments. Investors should be aware that market fluctuations and economic changes can impact performance.
Investing involves risk, including loss of principal. Past performance does not guarantee future results. No investment strategy or diversification can ensure a profit or eliminate the risk of loss.
Risks specific to the Defender Strategy include Management Risk, High-Yield Bond Risk, Fixed-Income Securities Risk, Equity Securities Risk, Foreign Investment Risk, Market Risk, Emerging Markets Risk, Real Estate and REITs Risk, Commodities Risk, Tax Risk, Underlying Funds Risk, Derivatives Risk, Non-Diversification Risk, Turnover Risk, US Government Securities Risk, Models and Data Risk, Momentum Risk, and Limited History of Operations Risk.
This is for informational purposes only and is not a recommendation nor solicitation to buy, sell or invest in any investment product or strategy. No information provided should be viewed as or used as a substitute for individualized investment advice. An investor should consider the investment objectives, risks, charges, and expenses of the investment and the strategy carefully before investing.
Kensington Asset Management, LLC (“KAM”) relies on third party sources for some of its information that we believe is reliable. However, we make no representation, warranty, endorse or affirm as to its accuracy or completeness. The information provided is current as of the date of publication and may be subject to change. We are not responsible for updating this information to reflect any subsequent developments or events.
Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Investors cannot invest directly in an index. Comparisons to indexes have limitations because indexes have volatility and other material characteristics that may differ from a particular strategy such as the types of securities being substantially different.
Advisory services offered through Kensington Asset Management, LLC (“KAM”) The Kensington Defender Strategy is managed by Kensington Asset Management, LLC and sub-advised by Liquid Strategies, LLC. Additional information about the Strategy and the adviser can be obtained by viewing company disclosure documents available upon request. This document should not be copied or distributed without the consent of KAM.
KAM20250408C
Related Perspectives
View All-
White paper: Trend Following and Tail Risk
An introductory understanding of how trend following can manage tail risk.
-
Navigating Fixed Income Markets in 2025
At Kensington Asset Management, we’ve actively managed fixed income solutions for clients for over three decades. Throughout this journey, we’ve weathered all types of macroeconomic regimes from extreme market volatility events to periods of steady growth.
