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Our Economic Outlook: Partly Sunny, But A Few Clouds Remain
Our Economic Outlook: Partly Sunny, But A Few Clouds Remain
Our Economic Outlook: Partly Sunny, But A Few Clouds Remain
For the Moderate and Aggressive portfolios the overall decrease in fixed income exposure was accompanied by an increase
of +1% in exposure to high-yield bonds which we had been slightly underweight. The adjustments reflect our belief that return
spreads will tighten or remain stable in the near-term.
The table below summarizes our current asset class and category weightings.
Asset Category Benchmark Target Over/Under Benchmark Target Over/Under Benchmark Target Over/Under
Large-Cap Growth 4.75% 5.25% 0.50% 8.00% 8.50% 0.50% 14.50% 15.00% 0.50%
Large-Cap Core 9.00% 9.00% 0.00% 16.00% 16.00% 0.00% 14.50% 14.50% 0.00%
Large-Cap Value 11.00% 10.50% -0.50% 9.50% 9.00% -0.50% 8.50% 8.00% -0.50%
Mid-Cap Growth 4.00% 4.50% 0.50% 7.00% 7.50% 0.50% 13.50% 14.00% 0.50%
Mid-Cap Value 6.75% 6.25% -0.50% 5.50% 5.00% -0.50% 4.75% 4.25% -0.50%
Small-Cap Growth 0.75% 0.75% 0.00% 1.00% 1.00% 0.00% 1.25% 1.25% 0.00%
Small-Cap Value 0.75% 0.75% 0.00% 1.00% 1.00% 0.00% 1.00% 1.00% 0.00%
Real Estate 2.00% 2.00% 0.00% 2.00% 2.00% 0.00% 2.00% 2.00% 0.00%
Domestic Equity 39.00% 39.00% 0.00% 50.00% 50.00% 0.00% 60.00% 60.00% 0.00%
International Developed 6.00% 6.00% 0.00% 10.00% 10.00% 0.00% 12.50% 12.50% 0.00%
International Emerging 0.00% 0.00% 0.00% 4.00% 4.00% 0.00% 6.50% 6.50% 0.00%
International Equity 6.00% 6.00% 0.00% 14.00% 14.00% 0.00% 19.00% 19.00% 0.00%
High-Quality Bond 30.00% 30.00% 0.00% 19.00% 19.00% 0.00% 11.00% 11.00% 0.00%
High-Yield Bond 0.00% 0.00% 0.00% 3.00% 3.00% 0.00% 5.00% 5.00% 0.00%
Inflation-Adjusted Bond 9.00% 9.00% 0.00% 6.00% 6.00% 0.00% 4.00% 4.00% 0.00%
Domestic Bond 39.00% 39.00% 0.00% 28.00% 28.00% 0.00% 20.00% 20.00% 0.00%
International Bond 8.00% 8.00% 0.00% 3.00% 3.00% 0.00% 0.00% 0.00% 0.00%
International Bond 8.00% 8.00% 0.00% 3.00% 3.00% 0.00% 0.00% 0.00% 0.00%
Cash & Equivalents 8.00% 8.00% 0.00% 5.00% 5.00% 0.00% 1.00% 1.00% 0.00%
Totals 100.00% 100.00% 0.00% 100.00% 100.00% 0.00% 100.00% 100.00% 0.00%
This table details the difference (Over/Under) between current target weightings and the long-term benchmark strategic allocations
within each portfolio. Periodic adjustments are occasionally needed to balance our overall risk-reward ratio. Target weight numbers
reflect current adjustments to each portfolio as of December 31, 2010. The risk designations are relative only to the three Strategic
Allocation portfolios and do not represent comparisons with any other investment.
You should consider the fund’s investment objectives, risks, and charges and expenses carefully before you invest. The fund’s
prospectus or summary prospectus, which can be obtained by visiting americancentury.com, contains this and other information
about the fund, and should be read carefully before investing. Investment return and principal value will fluctuate and it is possible
to lose money by investing.
Economic Outlook:
Partly Sunny, but a Few Clouds Remain
As the fourth quarter 2010 came to an end, the economy seemed poised to break out of
the sluggish growth it had been in since the Great Recession ended in June 2009. Most
importantly, consumer spending is showing signs of recovering. By December 2010,
retail sales had increased for six consecutive months with overall spending reaching its
highest since October 2007. Some attributed this simply to consumer psychology based
on pent-up demand and frustration after nearly three years of relative austerity. However,
there are other indicators that suggest consumer finances are on the mend.
The National Income Product Accounts, published quarterly by the U.S. Bureau of
Consumer spending is Economic Analysis, shows the ratio between total consumer debt and the personal
showing signs of recovering. savings rate from the first quarter of 1947 to the third quarter of 2010. Consumer debt
and personal savings are calculated as percentages of personal disposable income.
By December 2010, retail
sales had increased for six There have been encouraging shifts in the trends of both total consumer debt and
personal savings rates over the past three years (illustrated by the dashed oval in the
consecutive months with
chart below). Consumer debt has begun to drop (slowly at first, but more convincingly
overall spending reaching its since late 2009) while personal savings rates have increased to over 5% of personal
highest since October 2007. income. The gap or spread between these two statistics had been widening over a 16-
year period from 1991 to 2007 as the personal savings rate plummeted while
the consumer debt ratio increased substantially. The reversal in this spread based on
rising savings and declining debt is a positive sign for the future outlook of households
and spending.
8% 0.8
6% 0.6
Total Consumer Debt to
Disposable Personal Income Ratio
(right scale)
4% 0.4
2% 0.2
0% 0.0
1947-Q1
1949-Q3
1952-Q1
1954-Q3
1957-Q1
1959-Q3
1962-Q1
1964-Q3
1967-Q1
1969-Q3
1972-Q1
1974-Q3
1977-Q1
1979-Q3
1982-Q1
1984-Q3
1987-Q1
1989-Q3
1992-Q1
1994-Q3
1997-Q1
1999-Q3
2002-Q1
2004-Q3
2007-Q1
2009-Q3
Year/Quarter
Businesses have also continued to generate impressive earnings and earnings growth,
which was actually one of the very few bright spots in the early stages of the recovery.
However, businesses have been reluctant to expand either in terms of capital spending
or substantial new hiring based on soft demand from the consumer sector. One result is
that corporations have accumulated the largest amount of liquid assets as a percentage
Businesses have been of total assets on their balance sheets in 50 years (see chart below). At $1.9 trillion
reluctant to expand either in (third quarter 2010), this pool of money could be put to use for expansion and hiring if
terms of capital spending or aggregate demand—especially consumer demand—continues to recover. Alternatively,
the excess cash could also be used to increase dividend payouts or share repurchases.
substantial new hiring based
on soft demand from the Corporate Liquid Assets Are at a 50 Year High
consumer sector. Nonfarm, Non-financial Corporations
First Quarter 1960 to Third Quarter 2010
Liquid Assets as a Pecent of Total Corporate Assets
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0%
1960-Q1
1961-Q3
1963-Q1
1964-Q3
1966-Q1
1967-Q3
1969-Q1
1970-Q3
1972-Q1
1973-Q3
1975-Q1
1976-Q3
1978-Q1
1979-Q3
1981-Q1
1982-Q3
1984-Q1
1985-Q3
1987-Q1
1988-Q3
1990-Q1
1991-Q3
1993-Q1
1994-Q3
1996-Q1
1997-Q3
1999-Q1
2000-Q3
2002-Q1
2003-Q3
2005-Q1
2006-Q3
2008-Q1
2009-Q3
Year/Quarter
However, given the huge amount of liquidity remaining in the global economic system
and highly stimulative policies such as record federal budget deficits and quantitative
With the exception of the easing programs by the Federal Reserve (where they buy U.S. Treasuries to inject more
1970s when stagflation liquidity into the financial system), there is a risk that accelerated economic growth
occurred (high unemployment could quickly change the inflationary outlook from low to moderate or even high. And if
that occurs, the Federal Reserve would be forced to choose between anti-inflationary
and high inflation), the
steps that could choke off the recovery or allow inflation to accelerate in order to
relationship between continue growth and address the high unemployment rate.
unemployment and inflation
has been inversely related with
inflation rising as labor markets Unemployment Rate and 12 Month Rolling Inflation (CPI-U)
tighten and industrial capacity January 1960 to November 2010
utilization peaks.
Rate of Unemployment and 12 Month Change in CPI-U
16.0%
14.0%
12 Month Rolling Rate of Inflation
12.0%
10.0%
Unemployment Rate
8.0%
6.0%
4.0%
2.0%
0%
Jan-60
Feb-62
Mar-64
Apr-66
May-68
Jun-70
Jul-72
Aug-74
Sep-76
Oct-78
Nov-80
Jan-83
Feb-85
Mar-87
Apr-89
May-91
Jun-93
Jul-95
Aug-97
Sep-99
Oct-01
Nov-03
Jan-06
Feb-08
Mar-10
Month/Year
In summary, while our economic outlook remains cautious, we are more optimistic
today than in past quarters. The 11th hour decision to extend the Bush-era tax cuts
across the board for another two years, along with encouraging signs of life from the
U.S. consumer and corporations flush with cash, all point to a potentially higher rate
of economic growth than we experienced in 2010. If these insights prove correct (and
there are no guarantees), this year may be the year we finally put the Great Recession in
the past and move on.