As 2020 winds down, the election nearing completion and a vaccine for COVID-19 around the corner, LSA will be implementing revisions to the following portfolios: Private Client L100k, Socially Responsible, American Funds, Fidelity, Vanguard and all of the VA models.  These changes will be implemented for the NTF solutions as well.  The IPC is working on the revision rationale, as well as the revision video, and will be posting all the updates to the LSA Beta site this week.  Below you will find the targeted release schedule for each of the model series.

Posted Tuesday, December 8^th, Private Client L100k, American Funds, Fidelity, and Vanguard – targeted trade date – Tuesday, December 15^th.

Posted Wednesday, December 9^th, JNL, JNL EA, Sammons – targeted trade date – Wednesday, December 16^th.

*As a reminder, the Revision Explanation Presentation/Video will be posted in the “Portfolio News,” section on each of the platform home pages.

*Tax Efficient models will not be updated until the first quarter of 2021.

*LSA will be removing the NTF ETF models at the end of December.  With the major custodial platforms moving to a full NTF ETF platform there is no reason to continue to support the NTF ETF solutions we will only be providing the open model series.

Investment Rationale:

The markets have held up pretty well over this last quarter even after the latest modest pullback, perhaps the uncertainties caused by the virus and its related economic toll combined with the uncertainty of the elections. It’s important for us to remember that the presidency, as powerful a position as it is, has very little to do with the economy as a whole. Congress can push the needle with their fiscal policies certainly, but even then, it’s often more to do with what they don’t do that makes the difference. Now that the elections are almost at an end, and with the COVID-19 vaccines in production, there looks to be some closure to the uncertainty. With this, coupled with a congress that is looking to pass another round of stimulus, the LSA IPC is looking to address a little 2021 posturing in some of the models that were not impacted by the June updates.

Valuations today appear neither extremely cheap, nor outrageously expensive, and price in an optimistic economic and earnings recovery next year, which of course is possible. It’s important to not become complacent, and reassess that one’s current positioning is appropriate no matter the weeks and months ahead. This is important for potential volatility on the downside, if conditions don’t improve as quickly as markets hope or have already priced in. As importantly, it could also help avoid missing critical upside, since news on the medical and economic front could potentially be received very positively by global financial markets.  This is why the LSA IPC is making some updates to the models at this time.  These changes are looking to address safety and downside while taking advantage of some growth opportunities. 

Here are the core themes: 

1. LSA is looking to continue increasing our Large Cap exposures with a stronger continued bias toward the growth side. Technology has been incredibly resilient through the recent pandemic and has provided an opportunity for growth within models.  LSA is looking to increase the focus on this opportunity and to take advantage of some of the price dislocation that continues to be attractive.
2. As mentioned above, it is important to address upside opportunities, but with all of the uncertainty of our markets and the global economy, it is also important to continue to address the downside as well. The LSA IPC is looking to pair our increase in equities and growth with a treasury position.  Treasuries have served as a tremendous hedge to equities over time, which is why we are looking to pair the equity exposures appropriately with a treasury to help as the potential for volatility remains high for the next year or so. 
3. At this time the LSA IPC continues reassessing our underweights to internationals and small caps as valuations continue to look a little more attractive. In previous model updates, LSA has been overweight large caps and in the international space has leaned more towards a global play.  As the health of the global economy continues to improve, we would expect to see these overweights start to neutralize.  Not all of these thoughts will be expressed in this round of updates, but will be at the top of list for potential updates in 2021. 

As the markets continue to look for clarity from COVID-19 and recent unrest in US social issues, LSA continues to believe that volatility is still of concern over the next 12 months.  Once again, much of the recent crisis has been masked by Congress and the Federal Reserve which has helped spur a tremendous recovery in 2020.  It is important that we continue to be diligent as these artificial tailwinds could quickly become headwinds as we watch an ever-growing deficit and an unemployment rate that is going to be difficult to continue to decrease at a pace like what we saw in the second and third quarter.  These market environments allow for the ability to reevaluate risk and cooler heads to identify opportunities in the markets which is the core goal of the recent model updates.