Portfolio Revision| Adjusting for Policy Uncertainty

April 2025

As we look ahead, we continue to expect the U.S. economy to expand through 2025, supported by a strong labor market, resilient consumer demand, and a more constructive backdrop for capital markets in the second half of the year. Equities, while subject to bouts of volatility, are still likely to finish the year higher than where they started. However, it would be remiss not to acknowledge the rising headwinds. Recent developments—particularly around trade policy uncertainty and shifting fiscal priorities—have begun to weigh on corporate sentiment. As a result, we’ve modestly lowered our near-term GDP growth projections, anticipating a temporary deceleration in capital expenditures and business investment.

The LSA Investment Policy Committee; will be implementing model updates to the mutual fund, ETF, VA and VUL models.   Below you will find a breakdown of the upcoming changes:

• Posted Thursday, April 10^th – American Funds, BME, CBP, ETF, Private Client, Private Client Blended, Private Client Tax Efficient, and Private Client L100k – targeted model update – Thursday, April 17^th.
• Posted Tuesday, April 15^th – ETF Tactical, PC Income Strat/Income Focus, Private Client Traditional, and Private Client IQ – targeted model update – Tuesday, April 22^st.
• Posted Wednesday, April 16^th – Impact Series, DFA, DFA Blended, Fidelity, and Vanguard – targeted model update – Wednesday, April 23^nd.
• VA model updates will be posted the week of April 21^st.

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

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

Investment Rationale Note: Uncertainty Creeping into the Market Outlook

The equity market correction in March has also underscored how crowded many leadership trades have become, particularly in areas such as artificial intelligence and U.S. consumer names. These sectors, which were among the biggest beneficiaries of the post-pandemic cycle, now appear increasingly vulnerable to sentiment shifts. In response, we’re not pulling back from equities outright, but instead, we’re refining the balance within our portfolios. The committee continues to keep watch over cyclical U.S. sectors—namely Financials, Consumer Discretionary, Energy, and Industrials. These sectors, while offering long-term value, are particularly sensitive to fluctuations in policy expectations and global economic activity. By reallocating a portion of existing exposures, we aim to soften the impact of potential underperformance in the most crowded trades while lowering the overall concentration risk within our U.S. equity allocation.  Importantly, this shift also reintroduces a more diversified cross-section of the International equity market into portfolios.  While we remain cautious about US markets ability to lead over the near term, long-term we continue to believe U.S. stocks create a supportive environment for longer-term outperformance in the months ahead.

On the fixed income side, we applied a similar mindset to our November thesis—adjusting duration and credit exposures to reflect our slightly more conservative macro outlook. Specifically, we are looking to reduce our duration underweight throughout the year and improve downside risk management should the Fed move forward with additional easing later this year. In addition, we increased exposure to U.S. investment-grade corporates following modest spread widening, which has made valuations more attractive without a corresponding increase in default risk.

Finally, in recognition of the increased volatility that tends to accompany shifts in monetary and fiscal policy, we’ve adjusted allocations to our alternative strategies across select risk profiles. This strategy is designed to respond dynamically to market conditions, adding a layer of risk mitigation as we navigate an increasingly uncertain environment.

Here are the core themes: 

1. Pure International Exposure over Global: We are placing greater emphasis on dedicated international allocations, particularly in Europe, where near-term catalysts and attractive valuations provide potential for relative outperformance.
2. Alternatives as a Policy Hedge: We continue to lean into alternative strategies—including our disciplined volatility strategy—as tools for managing short-term policy risk and market dislocations.
3. Manager Selection – it is important to revisit all positions to make sure that we continue to have the appropriate manager in place for the role they play in the models.  There are a number of investments available and we utilize these model updates as an opportunity to revisit all the underlying positions that make up a model, and make sure that we continue to have a meaningful manager or position that is bringing skill and value to the strategy.