2nd Quarter 2007August 3, 2007
Portfolio Construction
What is the backdrop by which our Dynamic Asset Allocation Portfolios are constructed?
Strategic asset allocation on one end of the spectrum is the practice of rebalancing a portfolio to fixed percentages for each asset class and style (i.e. growth or value). On the other end of the spectrum is tactical asset allocation that takes significant weights in an asset class or style and does not rebalance to fixed percentages. Tactical asset allocation seeks to take advantage of market trends such as value outperforming growth stocks over the past 7 years.
Our Dynamic Asset Allocation Portfolios are termed “Dynamic” because they are on neither end of the spectrum. There is no rebalancing to fixed percentages and they do not take large or frequent shifts in the portfolio that a tactical strategy would employ; instead it is measured shifts over a 6 to 18 month time period. Current positioning has the portfolios underweighted in bonds and small-caps and overweighted in international and large-cap stocks.
The strategy is to add alpha through asset allocation overlays and use managers who have an active management style. Asset allocation overlays are the decisions to overweight or underweight asset classes, sectors, substyles, etc. Active portfolio manages look to beat their benchmark by investing in stocks outside of that benchmark or by overweighting and underweighting securities, sectors, styles, etc..
Fund Selection
Why invest in one portfolio over another in the Dynamic Asset Allocation Portfolios?
Prudential Investments (PI) manages the Dynamic Asset Allocation Portfolios using Morningstar as a consultant on the fund selection process
Within the parameters of how the portfolios were constructed and our strategy of capturing alpha through active fund management and asset allocation overlays, the fund selection process involves various factors including the economic forecast and the level of conviction in a portfolio manager. Fund selections are not expected to be short-term decisions but PI may invest in any AST portfolio at any time depending on market shifts.
Beginning with the large-cap growth space, PI has a high conviction in Marsico’s ability too add alpha over any given market cycle and his success at taking bets away from the benchmark. PI also favors the portfolio’s position in mega-cap stocks given the economic forecast of a slowing US economy. The selection of T. Rowe Price acts as a good diversifier against Marsico’s sector bets and combines a bottom up approach with Marsico’s top-down strategy. PI also likes T. Rowe Price’s aggressive nature and tilt towards growth stocks.
As growth stocks are rotating back into favor, PI has selected the Alliance Bernstein Growth & Income portfolio due to its relative value strategy. The AST Large Cap Value portfolio was selected to diversify the large cap value space.
NeubergerBerman Mid-Cap Growth and the AST Mid-Cap Value portfolios were recently added to the Dynamic Asset Allocation Portfolios to increase exposure to these styles. PI likes the strength and experience of the team at Neuberger- Berman and believes that the strategy will do well in periods that favor companies with strong and growing earnings. The AST Mid-Cap Value portfolio acts as a diversifier and is expected to do well in lower return and down markets.
PI likes the unconstrained nature of the Federated Aggressive Growth portfolio, which has an outstanding track record. The AST Small Cap Value portfolio provides diversity with a lower risk profile than its benchmark using a multi-managed approach.
In the international space PI selected the AST International Growth and AST International Value portfolios for the diversity in styles.
The charts that follow are a comparison of performance using the Class B products from the companies we consider to be the top competitors in each channel. The first quarter figures represent non-standardized performance.
Asset allocation does not guarantee a profit or protect against a loss. Past performance is neither an indicator nor a guarantee of future results. The investment returns will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the past performance data quoted. Standardized performance and information as of the most recent month-end is available at
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2nd Quarter 2007August 3, 2007
Aggressive Asset Allocation:
IMPORTANT NOTICE: This information is for internal corporate use only, and must not be distributed to field personnel, including agents, their supervisors, or any other agency or brokerage staff. The prohibition applies to both Prudential sales personnel as well as third-party brokers. This information is not to be used in an adversarial manner; the intent is to provide information about the competitiveness of Prudential products and the advantages of the services we offer. Discussions involving competitor products should only occur as it relates to potential sales (i.e. the current competitor product). Any question regarding a competitor product pertaining to a potential exchange of that contract must be referred to the insurance company whose product is being replaced. In addition, note that Prudential compiled this information. Prudential can only confirm the complete accuracy of the values shown for its product. All information in this material is intended to provide only a general view of relative values. Please reference Product Profiles as well as the issuing companies product prospectuses for information regarding the base contract and rider. Information compiled as of December 31, 2006.
Strategic Partner annuities are issued by Pruco Life Insurance Company (except in New York, issued by Pruco Life Insurance Company of New Jersey), both located at 213 Washington Street, Newark, NJ 07102, and distributed by Prudential Investment Management Services LLC (PIMS), 3 Gateway Center, 14th Floor, Newark, NJ 07102. American Skandia Life Assurance Corporation annuities are issued by American Skandia Life Assurance Corporation and distributed by American Skandia Marketing, Incorporated, both located at One Corporate Drive, Shelton, CT 06484. All are Prudential Financial companies.
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2nd Quarter 2007August 3, 2007
Company / Product / Portfolio / Equity / Fixed / Performance / Performance2nd Qtr / Variance / Rolling 12 / Variance
Prudential-AST / ASAP III / AST Aggressive Asset Allocation / 100/0 / 6.00% / 18.83%
AXA Equitable / Accumulator 2006 / Aggressive Allocation / 90/10 / 5.56% / 0.44% / 18.67% / 0.16%
Jackson National / Perspective II / Aggressive Growth / 90/10 / 6.12% / -0.12% / 20.05% / -1.22%
John Hancock / Venture 2006 / Lifestyle Aggressive / 100/0 / 6.59% / -0.59% / 19.48% / -0.65%
Met Life / Class VA / MetLife Aggressive Allocation / 100/0 / 5.28% / 0.72% / 18.73% / 0.10%
Pacific Life / Pacific Portfolios / Model E (Aggressive)* / 92/8 / 5.81% / 0.19% / 20.41% / -1.58%
Written by Jill Perlin – Vice President, Advanced Marketing. For questions or suggestions for new topics please call (800) 425-1022 or email “retirement and advanced planning group” ???
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2nd Quarter 2007August 3, 2007
Growth Asset Allocation:
Written by David Weiss – Manager, Research Analyst.
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2nd Quarter 2007August 3, 2007
Company / Product / Portfolio / Equity / Fixed / Performance / Performance2nd Qtr / Variance / Rolling 12 / Variance
Prudential-AST / ASAP III / AST Capital Growth Asset Allocation / 80/20 / 5.06% / 16.75%
AXA Equitable / Accumulator 2006 / Moderate-Plus Allocation / 70/30 / 4.21% / 0.85% / 15.48% / 1.27%
Jackson National / Perspective II / Growth / 75/25 / 5.55% / -0.49% / 18.31% / -1.56%
John Hancock / Venture 2006 / Lifestyle Growth / 80/20 / 4.70% / 0.36% / 16.35% / 0.40%
Met Life / Class VA / MetLife Moderate Aggressive / 80/20 / 3.86% / 1.20% / 15.82% / 0.93%
Pacific Life / Pacific Portfolios / Model D (Moderate - Aggressive)* / 80/20 / 5.06% / 0.00% / 17.99% / -1.24%
Balanced Asset Allocation:
Company / Product / Portfolio / Equity / Fixed / Performance / Performance2nd Qtr / Variance / Rolling 12 / Variance
Prudential-AST / ASAP III / AST Balanced Asset Allocation / 65/35 / 3.91% / 14.12%
AXA Equitable / Accumulator 2006 / Moderate Allocation / 50/50 / 2.75% / 1.16% / 12.27% / 1.85%
Jackson National / Perspective II / Moderate Growth / 65/35 / 3.79% / 0.12% / 14.86% / -0.74%
John Hancock / Venture 2006 / Lifestyle Balanced / 60/40 / 3.23% / 0.68% / 14.33% / -0.21%
Met Life / Class VA / MetLife Moderate Allocation / 60/40 / 2.58% / 1.33% / 13.01% / 1.11%
Pacific Life / Pacific Portfolios / Model C (Moderate)* / 60/40 / 3.76% / 0.15% / 14.18% / -0.06%
Conservative Asset Allocation:
Company / Product / Portfolio / Equity / Fixed / Performance / Performance2nd Qtr / Variance / Rolling 12 / Variance
Prudential-AST / ASAP III / AST Conservative Asset Allocation / 55/45 / 3.15% / 12.50%
AXA Equitable / Accumulator 2006 / Conservative-Plus Allocation / 40/60 / 1.90% / 1.25% / 10.00% / 2.50%
Jackson National / Perspective II / Moderate / 40/60 / 2.15% / 1.00% / 11.34% / 1.16%
John Hancock / Venture 2006 / Lifestyle Moderate / 40/60 / 1.47% / 1.68% / 10.76% / 1.74%
Met Life / Class VA / MetLife Conservative Moderate / 40/60 / 1.20% / 1.95% / 9.85% / 2.65%
Pacific Life / Pacific Portfolios / Model B (Moderate - Conservative)* / 44/56 / 2.32% / 0.83% / 10.70% / 1.80%
Higher equity weighting have helped performance relative to our competitors
Preservation Asset Allocation:
Company / Product / Portfolio / Equity / Fixed / Performance / Performance2nd Qtr / Variance / Rolling 12 / Variance
Prudential-AST / ASAP III / AST Preservation Asset Allocation / 35/65 / 1.59% / 9.08%
AXA Equitable / Accumulator 2006 / Conservative Allocation / 20/80 / 0.63% / 0.96% / 6.99% / 2.09%
Jackson National / Perspective II / Conservative / 20/80 / 0.21% / 1.38% / 7.46% / 1.62%
John Hancock / Venture 2006 / Lifestyle Conservative / 20/80 / -0.15% / 1.74% / 7.69% / 1.39%
Met Life / Class VA / MetLife Conservative Allocation / 20/80 / -0.06% / 1.65% / 6.99% / 2.09%
Pacific Life / Pacific Portfolios / Model A (Conservative)* / 23/77 / 0.78% / 0.81% / 7.29% / 1.79%
Higher equity weighting have helped performance relative to our competitors
Footnote: Information for “Looking Ahead” was taken from PI Economic Update publication
Note: The “Variance” column in the charts above represent the difference between Prudential’s performance for the period and each competitor
Note: The competitors in this material represent the top 3 sellers for the 3rd quarter 2006 in the Independent, Bank and Wirehouse channels based on VARDS data. Bank: 1) Hartford, 2) Pac Life, 3) AXA; IBD Channel: 1) Jackson National, 2) Met Life, 3) Lincoln Financial; Wirehouse: 1) John Hancock, 2) AXA, 3) Met Life
Note: All the data used in any analysis was collected from the competitors web sites, VARDS and Morningstar databases. This information and standardized performance can be found at the following websites:
Note: Performance figures were taken from Morningstar’s Principia database.
* These are asset allocation models and not a funds of funds structure.
This material must be accompanied or preceded by product brochure and current prospectus.
Investors should consider the contract and underlying portfolios' investment objectives, risks, and charges and expenses carefully before investing. This and other important information are in the prospectuses. Have your clients read them carefully before investing.
Your clients’ needs and the suitability of an annuity product should be carefully considered before investing. Please consider all variable annuities available from Prudential Financial companies when evaluating their needs.
Prudential Investments is a business unit of Prudential Financial. Prudential annuities are issued by Pruco Life Insurance Company (in New York, issued by Pruco Life Insurance Company of New Jersey), both located at 213 Washington Street, Newark, NJ 07102, and distributed by Prudential Investment Management Services, 3 Gateway Center, Newark, NJ 07102
Written by David Weiss – Manager, Research Analyst.
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