This week more than 80 ESI Reps and many of ESI’s Home Office employees are gathered in Alexandria, VA for the first ESI Business Development Conference! Look for a conference recap next week, and in the meantime, we’ve filled this edition of ESI Insights with highlights from the past week and a new update from Touchstone.
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Q3 Commentary from Envestnet | PMC
By Michael Pajek
Multi-Asset Research Analyst, Envestnet | PMC
The second quarter of 2023 was an impressive one, driven by high-flying U.S. mega-cap technology names leading the way and most asset classes witnessing positive performance. Yet there continues to be a significant level of market uncertainty as the yield curve still is deeply inverted and leading economic indicators are showing signs of cracking. Challenging as this may seem, this current environment serves as a backdrop for how professionally managed portfolios can help advisors and their clients navigate the challenging markets.
The effectiveness of dynamic and tactical asset allocation has been challenged by academia and others who believe that you can’t consistently outperform the market. However, because asset price correlations have varied over time, there are periods when a more dynamic or tactical asset allocation approach might be more effective in accounting for the changing correlations and managing through market volatility. Through our analysis, we have found that, on average, managers with a seasoned investment team and a sound, repeatable investment process may adapt to the changing market environments. This type of approach can help investors navigate volatility and the changing market leadership throughout different market cycles.
Year-to-date as of June 30, 2023, the average Rep as a PM moderate portfolio on the Envestnet platform returned 7.76%, trailing the peer group comprised of dynamic and tactical Approved – Qualitative Fund Strategists portfolios, which returned 9.95% and 9.31%, respectively, over the same time.
For the most part, these Fund Strategist managers were adept at capturing the market’s rotation back to domestic equities and growth. Many successful managers also benefited by reducing their commodities and alternative exposures at the beginning of 2023 after capturing the outsized gains from commodities and the uncorrelated performance of alternatives in 2022. Furthermore, some managers were able to reduce equity allocations to limit drawdowns when the stock market showed weakness during 2022 and the banking crisis in the first quarter of 2023. In contrast, when they expected continued market gains after the banking crisis in March, certain managers were able to increase their equity exposures above their benchmarks to capture the rebound in the second quarter. While these more active approaches can experience specific periods of underperformance, the long-term benefits of professionally managed portfolio solutions and parsing out the emotions from investing can outweigh short periods of underperformance.
FOR INVESTMENT PROFESSIONAL USE ONLY
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Meet the Strategists and Managers
Representing a full range of investment approaches, our updated Meet the Strategists and Managers brochure (catalog #102764) provides a quick reference to the third party strategists, UMAs, and SMAs available on the ESI Illuminations platform.
Illuminations Portfolio Performance Snapshots for Q2 2023
To help you review the Illuminations fund strategist, UMA and SMA portfolios you’ve utilized for your clients and determine if there is something new and a better fit, performance snapshots have been updated for Q2 2023.
While we know we should not make recommendations purely off of performance, lists such as these are a great starting point to look at alternative solutions to help our clients better meet their financial goals.
Important Notes: Some performance information was not yet available at the time this document was created. This document can be found on the ESI Illuminations site as well as the NL Agent portal. To ensure the link below works correctly, please log in to the NL Agent portal first.
CLICK HERE for the ESI Illuminations Fund Strategist Portfolio Performance Comparison 1/1/23 – 6/30/23.
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Click here for a recording of the Jackson National webinar, featuring an introduction to Jackson National’s newest income rider, Strategic Income, as well as a discussion regarding important changes to Jackson’s suite of VA riders.
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From Touchstone:
Touchstone Fund Name Change effective August 31, 2023
Touchstone International ESG Equity Fund name change to:
Touchstone Sands Capital International Growth Equity Fund
| TA# No Change | CUSIP No Change | TICKER No Change | Existing Touchstone Fund Name | New Touchstone Fund Name |
| 66 | 89155H579 | TPYAX | International ESG Equity Fund Class A | Sands Capital International Growth Equity Fund Class A |
| 67 | 89155H561 | TPYCX | International ESG Equity Fund Class C | Sands Capital International Growth Equity Fund Class C |
| 68 | 89155H553 | TPYYX | International ESG Equity Fund Class Y | Sands Capital International Growth Equity Fund Class Y |
| 69 | 89155T532 | TPYIX | International ESG Equity Fund Class I | Sands Capital International Growth Equity Fund Class I |
On May 18, 2023, the Board of Trustees of the Touchstone Funds Group Trust approved a change to the name of the Touchstone International ESG Equity Fund (“the Fund”), fund sub-advisor and certain changes to the Fund’s principal investment strategies.
A supplement dated May 23, 2023 has been filed to the Fund’s Prospectus, Summary Prospectus and Statement of Additional Information and is being provided with this notice. There are no additional changes to the Fund except those described on the supplement.
Effective August 31, 2023, all references to the Touchstone International ESG Equity Fund should be replaced with “Touchstone Sands Capital International Growth Equity Fund”.
Should you have any questions, DTCC participant firms are invited to call BNY Mellon Broker Dealer Services at 1-877-332-2371. For any fund direct business or fund related inquiries, please contact Touchstone Shareholder Services at 1-800-543-0407.
FOR BROKER DEALER USE ONLY
TOUCHSTONE FUNDS GROUP TRUST
Touchstone International ESG Equity Fund (the “Fund”)
Supplement dated May 23, 2023 to the Prospectus, Summary Prospectus, and Statement of Additional Information dated January 27, 2023
IMPORTANT NOTICE REGARDING CHANGE IN INVESTMENT POLICY
Change in Name, Sub-Adviser, Investment Goal & Investment Strategy of the Fund
At a meeting of the Board of Trustees (the “Board”) of Touchstone Funds Group Trust (the “Trust”) held on May 18, 2023, Touchstone Advisors, Inc. (“Touchstone”) proposed, and the Board approved, the following changes to the Fund, which will take effect on or about August 31, 2023 (the “Effective Date”): a name change for the Fund to the Touchstone Sands Capital International Growth Equity Fund, the appointment of Sands Capital Management, LLC (“Sands Capital”) as sub-adviser to the Fund, and the changes to the Fund’s investment goal and principal investment strategies as detailed herein (together, the “Updates”). Sunil Thakor, David Levanson and Danielle Menichella, each of Sands Capital, will serve as the Fund’s portfolio managers beginning on the Effective Date. The Updates do not require shareholder approval.
On the Effective Date, all references to Rockefeller & Co. LLC (“Rockefeller”), the Fund’s current sub-adviser, in the summary prospectus, prospectus, and statement of additional information (“SAI”) will be deleted and replaced with Sands Capital and all references to the Touchstone International ESG Equity Fund will be deleted and replaced with Touchstone Sands Capital International Growth Equity Fund. Sands Capital also serves as sub-adviser to: the Touchstone Sands Capital Select Growth Fund, a series of the Trust; as well as the Touchstone Sands Capital Emerging Markets Growth Fund and the Touchstone Sands Capital International Growth Fund, each a series of Touchstone Strategic Trust. As the sub-adviser, Sands Capital will make investment decisions for the Fund and will also ensure compliance with the Fund’s investment policies and guidelines. As of March 31, 2023, Sands Capital managed approximately $48.4 billion in assets.
The following changes to the Fund’s investment goal, 80% investment policy and principal investment strategies will be made in connection with the Updates, which will take effect on the Effective Date:
| Current: | New (upon the Effective Date): | |
| Investment Goal: | Seeks long-term growth of capital. | Seeks long-term capital appreciation. |
| 80% Investment Policy: | The Fund invests, under normal circumstances, at least 80% of its assets in equity securities of non-U.S. companies that meet certain financial and environmental, social, and governance (“ESG”) criteria. The Fund’s 80% policy is a non-fundamental investment policy that can be changed by the Fund upon 60 days’ prior notice to shareholders. | The Fund invests, under normal market conditions, at least 80% of its assets (including borrowings for investment purposes) in equity and equity-related securities issued by companies in foreign countries. The Fund’s 80% policy is a non-fundamental investment policy that can be changed by the Fund upon 60 days’ prior notice to shareholders. |
| Principal Investment Strategies: | Equity securities include common stocks, preferred stocks, convertible securities, depositary receipts such as American Depositary Receipts (“ADRs”), Global Depositary Receipts (“GDRs”) and European Depositary Receipts (“EDRs”), and interests in other investment companies, including exchange-traded funds that invest in equity securities. The Fund’s sub-adviser, Rockefeller & Co. LLC (“Rockefeller”), selects investments for the Fund based on an evaluation of a company’s financial condition and its ESG practices. Rockefeller applies “bottom-up” security analysis that includes fundamental, sector-based research in seeking to identify businesses that have high or improving returns on capital, barriers to competition, and compelling valuations. Rockefeller believes that integrating ESG analysis into the investment process provides additional insight into a company’s long-term competitive edge and helps identify risks and opportunities that financial analysis might not fully consider. Rockefeller analyzes the potential ESG opportunities and risks of a company, considers how well the company manages these opportunities and risks, and ascertains the company’s willingness and ability to take a leadership position in implementing best practices. Through this evaluation and ongoing engagement, Rockefeller seeks to support and encourage the company’s progress toward sustainability. The Fund invests in securities of any size, but generally focuses on larger, more established companies. The Fund invests primarily in securities of companies domiciled in developed markets, but may invest up to 30% of its net assets in securities of companies domiciled in emerging and frontier markets. Emerging markets are defined as those countries not included in the MSCI World Index, a developed market index. As of December 31, 2022, the countries in the MSCI World Index included: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The country composition of the MSCI World Index can change over time. Frontier markets are those emerging market countries that have the smallest, least mature economies and least developed capital markets. | The Fund invests primarily in a portfolio of equity securities such as common stock, preferred stock, and depositary receipts. The Fund will generally consider qualifying investments to be in companies that are organized under the laws of, or maintain their principal place of business in a foreign country; have securities that are principally traded in such countries; or derive at least 50% of revenues or profits from, or have at least 50% of their productive assets, as determined by the Fund’s sub-adviser, Sands Capital Management, LLC (“Sands Capital”), in such countries. The Fund may also invest up to 30% of its assets in issuers in emerging market or frontier market countries. The Fund generally invests in a concentrated portfolio of 25 to 40 issuers, with position sizes weighted by the conviction Sands Capital has in the investment opportunity. Issuers are selected through fundamental research undertaken by Sands Capital. In selecting securities for the Fund, Sands Capital utilizes proprietary, fundamental, business-focused research to identify companies for investment that it believes have the capacity to generate sustainable, above-average growth over a five-year time horizon. This “bottom-up” approach to investment selection focuses on a company’s long-term business fundamentals, as opposed to sector or regional allocations. Therefore, the Fund may overweight certain geographies or sectors and may underweight other geographies or sectors relative to the stated benchmark. Sands Capital seeks to identify leading growth businesses that meet the following criteria: • Sustainable above-average earnings growth • Leadership position in a promising business space • Significant competitive advantage/unique business franchise • Clear mission and value-added focus • Financial strength • Rational valuation relative to the market and business prospects As an integral part of the evaluation of a company, Sands Capital considers corporate governance, social, and environmental practices (collectively, “ESG”) when it believes such practices may be material to the long-term shareowner value-creation potential of the company. Sands Capital utilizes proprietary ESG-related research to enhance its evaluation of portfolio businesses. The relevance and materiality of ESG practices vary and are highly dependent on the region, country, industry, and company. Sands Capital’s analysis of these practices is integrated into the investment decision-making process to the extent it believes they may affect a company’s value-creation potential. Sands Capital generally intends for the Fund’s investments to be held for an average term of three to five years, although the Fund may hold any investment for any length of time. Sands Capital generally considers selling a security when it no longer meets the investment criteria outlined above, for risk management purposes, or if a more attractive investment opportunity presents itself. |
The Fund’s current sub-adviser, Rockefeller, will continue to serve as sub-adviser until the Effective Date. Upon the Effective Date, the following principal risks of the Fund will be removed: Small-, Mid- and Large-Cap Risks, Convertible Securities Risk and Other Investment Companies Risk (including Exchange-Traded Funds Risk). Additionally, in connection with the Updates, the following principal risks will be added: Growth-Investing Risk and Sector Focus Risk. These risk factors will be set forth in an updated summary prospectus, prospectus and SAI for the Fund.
Reduction in Expense Limitation of Institutional Class Shares of the Fund
Additionally, upon the Effective Date, Touchstone has agreed to waive a portion of its fees or reimburse certain Fund expenses (excluding dividend and interest expenses relating to short sales; interest; taxes; brokerage commissions and other transaction costs; portfolio transaction and investment related expenses, including expenses associated with the Fund’s liquidity providers; other expenditures which are capitalized in accordance with U.S. generally accepted accounting principles; the cost of “Acquired Fund Fees and Expenses,” if any; and other extraordinary expenses not incurred in the ordinary course of business) in order to limit annual Fund operating expenses to 0.86% of average daily net assets for Institutional Class shares of the Fund. This contractual expense limitation will be effective through at least August 30, 2024. The Fund’s current contractual expense limitation for Institutional Class shares is 0.89%. There are no proposed changes to the contractual expense limitations of the Fund’s other share classes at this time.
Shareholders of the Fund will receive an Information Statement providing more information about the changes detailed herein.
Please
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Effective January 1, 2023, FINRA published its revised Rule 1240 – Continuing Education (“Rule”). The Rule implemented some significant changes to FINRA’s continuing education (“CE”) requirements. This notice describes how these changes impact you and what steps you’ll need to take to maintain compliance with the new Rule.
In summary, all registered representative and registered principals must complete the FINRA Regulatory Element CE on an ANNUAL basis. The deadline to complete the CE Course is 11/30/23.
REGULATORY ELEMENT CE
Effective January 1, 2023, all registered persons are required to complete FINRA’s Regulatory Element CE by December 31st each year. This represents a change to FINRA’s previous approach to CE as it replaces the previous 3-year anniversary requirement with an annual one. Note that, to ensure compliance with the rule, member firms may set different deadlines based on their business requirements. Accordingly, ESI will require that RRs complete their Regulatory CE by November 30th, each year.
Under the new program, participants must login to FINRA’s FinPro[1] portal where they will receive content that is specifically tailored to each representative or principal registration category they hold.
Newly-registered representatives will be subject to the annual CE requirement starting with the next calendar year after the year in which they pass their initial registration exam. For example:
ESI will place individuals who fail to complete their Regulatory Element by the November 30th deadline on “CE Inactive” status with the Firm. “CE Inactive” means you will not be able to submit new business and commissions will be suspended until you fulfill your CE requirement. If you remain CE Inactive for 30 calendar days, your ESI registration may be terminated.
FIRM ELEMENT CE
Also effective with the Rule, all registered persons are subject to the annual Firm Element CE requirement. This is a change in that, under the previous Rule, Firm Element CE was largely limited to affiliated persons who were client-facing and their supervisors. The new Rule expands the requirement to all registered persons, irrespective of their role. This change will generally impact home office employees who may have previously been exempted from the requirement based on their role and responsibilities. Effective with the 2023-2024 training cycle, the population of individuals subject to Firm Element CE will be expanded to comply with the new Rule.
ESI’s 2023-2024 Firm Element CE program will be made available in September 2023. The Firm will announce the program with a separate field notice.
RESOURCES
You can track your personal CE status from your FinPro account. If you haven’t already registered with FinPro, you can do so at https://finpro.finra.org/registerUser/. Existing FinPro users can log in at https://finpro.finra.org.
Additional FINRA CE resources can be found at:
Continuing Education (CE) | FINRA.org
Securities Industry CE Transformation | FINRA.org
QUESTIONS
Questions regarding this notice may be directed to ESI Licensing at esi_licensing@nationallife.com or Misty Dodson at mdodson@nationallife.com.
[1] Users must have an active FinPro account. Click hereto login or create your account.
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Equity Services is pleased to announce a new Enterprise agreement with Morningstar to enhance the Morningstar Advisor Workstation offering. If you currently subscribe to Morningstar, you will receive a separate email giving you more details on what to expect during the transition.
Whether you have been using Morningstar for years or would like to learn more about it please join us for a webinar on August 23rd at 4pm EST. During the webinar we will talk a little more about the transition, do a quick overview, and demo the new features that will be available you.
Morningstar Advisor Workstation – New Enhancements Webinar
August 23, 2023 4:00 PM EST
Please register using this link.
Morningstar Advisor Workstation is a comprehensive investment management platform that can help you manage your advisory models, review prospect’s portfolios, and help you find the next great investment opportunity. The platform offers a wide range of features, including:
In addition to these features, Morningstar Advisor Workstation is constantly updated with new functionality. This ensures that you have access to the latest tools and information you need to provide your clients with the best possible service.
If you are looking for a comprehensive investment management platform that can help you to manage your advisory business and grow your business, we encourage you to learn more about Morningstar Advisor Workstation.
If you would like to subscribe to Morningstar Advisor Workstation, please contact Thomas Lindsay at (224)236-4185 or thomas.lindsay@morningstar.com. You can also schedule an appointment directly using this link.
If you are an existing subscriber and would like to learn more about the new Plan or Engage solutions to see if those better suits your business needs. Please contact your account manager, Haley Ruch at Haley.Ruch@morningstar.com.
Contact your Account Manager, Haley Ruch at Haley.Ruch@morningstar.com.
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To help you review the Illuminations fund strategist, UMA and SMA portfolios you’ve utilized for your clients and determine if there is something new and a better fit, performance snapshots have been updated for Q2 2023.
While we know we should not make recommendations purely off of performance, lists such as these are a great starting point to look at alternative solutions to help our clients better meet their financial goals.
Important Notes: Some performance information was not yet available at the time this document was created. This document can be found on the ESI Illuminations site as well as the NL Agent portal. To ensure the link below works correctly, please log in to the NL Agent portal first.
CLICK HERE for the ESI Illuminations Fund Strategist Portfolio Performance Comparison 1/1/23 – 6/30/23.
For Investment Adviser Representative Use Only / Not For Use With Clients Or Members Of The Public
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On The Job
Bond yields rose marginally during July, but only in certain tenors: the very front end of the curve rose in response to the Fed’s 11th rate hike of the cycle, and five-year and longer tenors also rose by 2-15 basis points. Meanwhile, municipal bonds performed well as supply remains constrained and demand is strong. The net result was a very modest gain in the broad market — the total return for the Bloomberg U.S. Intermediate Aggregate Index was 0.15% — and a modest gain for the municipal sector — the total return for the Bloomberg Municipal Index was 0.40%.
Click Here to Read the Full Maple Capital Commentary
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With only a few weeks left until the first ESI Business Conference, we’re excited to announce that the conference is full and we’re unable to accept any new attendees. If you aren’t able to join us for this conference, don’t worry; we’re already working on dates for 2024!
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