LSA Model Revision Schedule – October 2022

LSA Trade Dates & Investment Rationale

October 2022 Model Update Announcement

Volatility roiled equity and fixed income markets this quarter as investors reacted to persistently high inflation and increasingly hawkish rhetoric from global central banks. In addition to delivering a third consecutive 75-basis point hike in September, the Fed reiterated its intention to push short-term rates into restrictive territory and “fight inflation at all costs,” even if that leads to a U.S. recession. With Fed Funds futures now pricing in a level above 4% by year-end 2022 through year-end 2023, the market seems to have accepted the prospect of a “raise-and-hold” approach to monetary policy. The LSA committee will be implementing model updates to the mutual fund and ETF’s, and VA models. With continued pressure on bonds and equities the committee will continue to focus on taking down risk in the short term. Below you will find a breakdown of the upcoming changes:

Posted Wednesday, September 28th – Private Client, PC Less 100K, PC Blended, ETF – targeted model update – Wednesday, October 5th.

Posted Tuesday, October 4th – PC Income Strat, PC IQ, PC Traditional, PC Tax Efficient, BME, CBP, American Funds, Fidelity and Vanguard – targeted model update – Tuesday, October 11th.

Posted Thursday, October 6th –SRI, DFA, DFA Blended, PC Income Focused, Allianz, Hartford, JNL, JNL EA – targeted model update – Thursday, October 13th.

Posted Friday, October 7th – Lincoln, Metlife, NWD JN, Nationwide, Ohio National, Pacific Life and Protective Life – targeted model update – Friday, October 14th.

Posted Tuesday October 11th – Prudential, Sammons, SBL, SBL Advisor Design, Sunlife, Transamerica, Valic, and Voya (VA,VUL, SA) – targeted model update – Tuesday, October 18th.

*The mutual fund model revisions impact the NTF models as well.

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

Investment Rationale:

Our fixed income allocations have remained cautiously underweight duration this year. Following the sharp rise in bond yields this quarter, our Model Portfolio Investment Committee is looking for an opportunity to extend duration and partially close this underweight position within the models. That said, we are maintaining our overall short duration positioning as we expect interest rate volatility to remain elevated. Inflationary pressure and interest rate volatility have also had a significant impact on equity markets this quarter. We expect the focus to shift from the macro backdrop to fundamentals, with an emphasis on profit margins. In this context, we continue to favor a neutralized stance towards value and quality factors within our equity allocations. In the U.S. we remain overweight large caps, but do believe that there is a compelling valuation opportunity in small caps as we start to think about 2023.

We don’t have much confidence in which reality is likely to firmly take hold from here, and we believe the market’s current price action likely represents more noise than signal. Unemployment remains near historic lows, job gains remain solid, and even recent increases in jobless claims are relatively small…however, consumer cash and wealth cushions have shrunk, business confidence has decreased, and most of the yield curve continues to be inverted as growth and inflation worries butt heads. We expect the Fed may frame the robust labor market, and high headline inflation phenomena, as sound justifications to energize their tightening campaign. With financial market volatility unlikely to dissuade their commitment to the cause, a substantial pullback across risk assets is a targeted objective of the Fed’s mission, not a byproduct. Their goal is to cool growth, dampen investment, and eventually pulldown inflation via demand destruction – but these efforts also raise the risk of a potential policy error and therefore may increase the probability of a recession.

The committee is looking to address a couple of core themes in the upcoming model updates including: continuing to look at the alternative space in an effort to identify opportunities that are finding lower correlation profiles relative to equities and bonds as a way to continue to try and control risk in the models. It has been an unusual year as bonds and equities have behaved in a similar fashion for a prolonged period of time. Although this has been painful for the traditional 60/40 investor, it has provided a long overdue reset to bonds.

Here are the core themes:

The committee is looking to continue to dampen risk within fixed income. This includes increasing some cash in the more conservative models and continuing to lean on lower duration higher quality opportunities to try and avoid continued interest rate pressures as the Fed attempts to dampen inflationary pressures.  

Manager selection, the committee continues to look for opportunities to replace managers that have underperformed relative to others in the space. We have had a couple of managers that have underperformed an appropriate benchmark over the last two quarters which will be replaced with positions that have demonstrated a better ability to be more defensive with the recent market turmoil.

The committee is looking to the alternative sleeve of the models to help find lower correlation opportunities to help provide potential downside protection relative to the equity and bond pressure. These alternative exposures will be captured by a balance of reduced bond and equity exposures and will target a risk profile that is similar to the combination of these two asset classes.

As the markets continue to look for clarity with all of the headwinds we discussed, the committee continues to believe that volatility could still be a factor through the remainder of 2022. These updates are focused on solving for better real return opportunities, outside of bonds, without disrupting our risk profile. This is always a difficult balance, but a necessary focus as volatility can happen at any time. As we roll into the fourth quarter we will hope for more clarity as we begin to think about posturing for 2023.  In the meantime these model adjustments will continue to support the diverse approach we take with each strategy and focus on continuing to reduce some risk to the models.

If you have any questions, please reach out to 866-581-5724 or

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