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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Resilient economic expansion supported by artificial intelligence infrastructure spending justifies an equity overweight in high-quality compounders with pricing power."
The Touchstone Balanced Fund delivered a net return of 2.51% for Class A shares in the third quarter of 2026 and 4.73% net of fees year-to-date, outperforming its blended benchmark of 60% Russell 1000 Index and 40% Bloomberg U.S. Aggregate Bond Index, which returned -0.35% and 6.13% over the respective periods. Relative outperformance was primarily driven by equity security selection and an asset allocation tilt favoring equities over fixed income, with equities returning 6.5% compared to -3.9% for bonds. A disciplined quarterly rebalance reduced equity exposure by approximately 3.5 percentage points, though strong market appreciation left the fund holding an approximate 64% equity allocation at quarter-end, representing a 4% equity overweight against the benchmark. The macroeconomic environment was characterized by trend-rate U.S. economic growth supported by robust capital expenditures in artificial intelligence infrastructure and ongoing consumer spending. However, consumer headwinds intensified amid elevated energy prices sparked by geopolitical conflicts in the Middle East and Ukraine. In response to persistent inflation and stable labor market conditions, the Federal Reserve instituted a 25 basis point rate increase in September. Investors interpreted the hike as a mid-cycle recalibration, causing the 10-year Treasury yield to advance roughly 80 basis points and flattening the yield curve, while corporate credit spreads stayed near historically tight levels. Portfolio activity was marked by rebalancing within both equity and fixed-income sleeves. Equity selection alpha was led by Information Technology and Communication Services, supported by overweight positions in Microsoft, Meta Platforms, Salesforce, and Workday. During the quarter, the manager eliminated its holding in Johnson & Johnson and initiated a position in medical technology firm Stryker. Within fixed income, duration positioning detracted amid rising rates, though sector allocation added value as the fund rotated approximately two percentage points from Treasuries into securitized products while preserving overweights in investment-grade and high-yield corporate credit.
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