Strategy Review – May 2025
Monthly Strategy Commentary
By Kensington Asset Management Team
MARKETS REBOUND AMID POLICY SHIFTS AND CREDIT DOWNGRADE
Following volatility spurred by April’s “Liberation Day” tariff announcement and subsequent 90-day pause, markets broadly adopted a “Risk-On” posture in May. Despite Moody’s downgrade of the US credit rating from Aaa to Aa1 mid-month, equities rallied and high-yield bonds outperformed duration-sensitive assets. Below is a summary of how each Kensington strategy navigated these conditions.
MANAGED INCOME STRATEGY
Author: Kensington Asset Management PM Team
May began with a return to Risk-On sentiment, driven by the broader market relief following the tariff pause. However, yields rose steadily, with the 10-Year Treasury climbing from 4.22% to 4.40% by month-end, exacerbated briefly by Moody’s US credit downgrade.
The Managed Income Strategy maintained a Risk-On stance throughout the month, primarily allocated to US high-yield bonds, supplemented with satellite positions in multisector fixed income. High-yield spreads narrowed during this period, indicating lower anticipated volatility. Given current market dynamics, the Strategy remains positioned to capitalize on high-yield opportunities, supported by tactical multisector allocations.
DYNAMIC allocation STRATEGY
(Formerly the “Dynamic Growth Strategy”)
Author: Kensington Asset Management PM Team
Risk-On market conditions favored US equities throughout May, marking the best monthly performance for Dynamic Allocation since July 2022. The Strategy maintained a fully invested position in large-cap equities, balanced between growth and core sectors.
Market indices reflected this robust rebound, with the S&P 500 and Nasdaq 100 gaining 6.15% and 9.04%, respectively. Technology stocks led the recovery, benefiting from decreasing volatility. Despite May’s gains, trade policy uncertainty remains a key market driver, prompting continued opportunistic tactical shifts between Risk-On and Risk-Off positions as conditions evolve.
ACTIVE ADVANTAGE STRATEGY
Author: Kensington Asset Management PM Team
The Active Advantage Strategy began May fully invested and maintained this allocation throughout the month, capturing significant gains across its diversified portfolio. Allocations remained evenly split, approximately 50% in high-yield-centric fixed income, complemented by emerging market and multisector bonds, and 50% in diversified equities spanning core, growth, and high dividend/minimum volatility strategies.
This balanced positioning yielded the best monthly performance for the strategy since December 2023. Should Risk-On sentiment persist, the strategy intends to remain fully invested, emphasizing tactical flexibility and disciplined diversification.
DEFENDER STRATEGY
Author: Elio Chiarelli, PhD, AIF – Lead Portfolio Manager, Liquid Strategies
The Kensington Defender Strategy continued its tactical and disciplined management in May, balancing capital preservation with participation in upward market momentum. Equity markets stabilized, driven by improving economic indicators and easing inflation expectations, leading to modestly lower bond yields.
The Defender Strategy maintained a defensive yet opportunistic stance, favoring US large-cap growth and global equities while increasing exposure to gold and real assets in response to stabilizing inflation expectations. The portfolio tactically reduced exposure to lower momentum sectors, such as small-cap equities, and emphasized short-duration instruments and cash segments to manage risk effectively.
Given ongoing uncertainty around central bank policies and geopolitical risks, the strategy remains poised to adjust exposures tactically, capitalizing on emerging market trends while protecting against volatility.
HEDGED PREMIUM INCOME STRATEGY
Author: Shawn Gibson – CIO, Lead Portfolio Manager, Liquid Strategies
Despite a brief mid-month pullback, the S&P 500 rallied strongly, finishing May with a 6.15% gain. The Hedged Premium Income Strategy was up for the month with positive contribution from our long call option positions.
As markets moved higher, the Strategy’s upside hedging contributed to performance. Income generation remained robust, with new call spreads established on May 16. Additionally, given the volatile market conditions, the team proactively adjusted the put spread closer to market levels, reducing the buffer from 10% to 5%.
Both call spread and put spread positions will reset at the upcoming June 20 expiration.
Disclaimers:
Investing involves risk, including loss of principal. Past performance does not guarantee future results. There is no guarantee any investment strategy will generate a profit or prevent a loss. Targeted distributions are not guaranteed. For the most recent strategy performance, please visit our website: www.kensingtonassetmanagement.com.
This is for informational purposes only and is not a recommendation nor solicitation to buy, sell or invest in any investment product or strategy. Our materials may contain information deemed to be correct and appropriate at a given time but may not reflect our current views or opinions due to changing market conditions. 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.
Certain information contained herein constitutes “forward-looking statements,” which can be identified using forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results, or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future.
Advisory services offered through Kensington Asset Management, LLC, Barton Oaks Plaza, Bldg II, 901 S Mopac Expy – Ste 225, Austin, TX 78746.
Managed Income Strategy
Risks specific to the Managed Income Strategy include Management Risk, High-Yield Bond Risk, Fixed-Income Security Risk, Loans Risk, Market Risk, Underlying Funds Risk, Derivatives Risk, Non-Diversification Risk, Turnover Risk, US Government Securities Risk, Models and Data Risk.
Dynamic Allocation Strategy
Risks specific to the Dynamic Allocation Strategy include Management Risk, Equity Securities Risk, Market Risk, Underlying Funds Risk, Derivatives Risk, Non-Diversification Risk, Turnover Risk, US Government Securities Risk, Models and Data Risk.
Active Advantage Strategy
Risks specific to the Active Advantage Strategy include Management Risk, High-Yield Risk, Fixed-Income Security Risk, Equity Securities Risk, Loans Risk, Market Risk, Underlying Funds Risk, Derivatives Risk, Non-Diversification Risk, Turnover Risk, US Government Securities Risk, Models and Data Risk.
Defender Strategy
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.
Hedged Premium Income Strategy
The Strategy invests in options that derive their performance from the performance of the S&P 500 Index. Selling (writing) and buying options are speculative activities and entail greater than ordinary investment risks. The Strategy’s use of put options can lead to losses because of adverse movements in the price or value of the underlying asset, which may be magnified by certain features of the options. When selling a put option, the Strategy will receive a premium; however, this premium may not be enough to offset a loss incurred by the Strategy if the price of the underlying asset is below the strike price by an amount equal to or greater than the premium. Purchased put options may expire worthless and the Strategy would lose the premium it paid for the option. The Strategy may lose significantly more than the premiums it receives in highly volatile market conditions.
The Strategy will invest in short term put options which are financial derivatives that give buyers the right, but not the obligation, to sell (put) an underlying asset at an agreed-upon price and date. The Strategy’s use of options may reduce the Strategy’s ability to profit from increases in the value of the underlying asset. The Strategy could experience a loss or increased volatility if its derivatives do not perform as anticipated or are not correlated with the performance of their underlying asset or if the Strategy is unable to purchase or liquidate a position.
Definitions:
Call Spread: An options trading strategy where the Strategy buys and sells call options on the same asset with different strike prices or expiration dates. The strategy helps manage risk and profit from small price changes.
Put Spread: An options strategy where the Strategy buys and sells put options with different strike prices but the same expiration date. This strategy can be used to limit potential losses while still allowing for profit if the underlying asset’s price declines.
S&P 500: A capitalization weighted index of 500 stocks representing all major domestic industry groups. Index assumes the reinvestment of dividends and capital gains.
NASDAQ 100 Index: A market index that comprises of the 100 largest, most actively traded companies listed on the Nasdaq stock exchange.
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