It was just announced that T. Rowe Price Cap App is going to be conducting a more formal soft close. LSA is recommending that you keep any current positions and utilize the following funds as possible replacements:
Janus Balanced – JDBAX
FPA Crescent – FPACX
IMPORTANT: Fund Closing Announcement
Please read this entire document. It contains very important information regarding a specific mutual fund closing and intermediary client requirements. Continue reading
Fed Note:
The Federal Reserve Open Market Committee completed their two-day April meeting today, with no real surprises. As many expected, the group announced an additional tapering amount of $10 bil./month, which now lowers the monthly treasuries and mortgage-backed securities being purchased down to $45 bil./month.
This was an FOMC ‘lite,’ so no press conference scheduled afterward and no release of Fed economic projections, so less to bicker about than normal. The committee’s formal release noted that broader economic factors have been impacted negatively by the winter weather, but are showing signs of improvement, as has household spending; however, business fixed investment fell during the period. Continue reading
LSA has posted the 1Q14 Market update call that Bud and Dean host live for their clients and prospects. This program allows Bud and Dean to communicate with their clients about what is happening in the market place today. Hear what two leading advisors are saying to clients to keep them informed and confident in their retirement. To listen to this recording simply log in to the LSA website and click on “Resources/FANN Radio”. If you are not a member but would like to listen to the show e-mail us at support@lsaportfolios.com .
Economic Update:
Boosted by positive economic news, U.S. equity markets were trending upward in the first half of the week. Toward the end of the week, investors’ concern on escalating tensions between Russia and Ukraine helped push the market lower. Large cap stocks outperformed both mid cap and small cap stocks. Defensive sectors beat cyclical sectors. Utilities and healthcare led the market with a small positive return, while telecom and consumer cyclical lagged with a small negative return. In general, value style outperformed growth style. Continue reading
Economic Update:
Economic data in the industrial production and retail sales areas, in particular, was stronger than expected and fueled hopes that the cold winter doldrums are behind us in favor of a more ‘productive’ spring.
In a short week, markets gained on decent earnings reports as well as better-than-expected economic growth in China.
U.S. equity markets were up strongly in the shortened week, with better economic data and a few earnings reports that surprised on the upside. In terms of sectors, energy and industrials led the way, up 3-4%, while utilities and telecom lagged, but still gained nearly 2%. Large-cap and small-cap ended up roughly in line. As of Friday only 80 firms in the S&P had reported earnings, 40% of which were positive, but is typical of this point in the reporting cycle (in the past few years, early reporters have been less robust than later reporters). This coming week will represent the biggest group.
In developed foreign markets, Japanese stocks rallied mid-week to a 2% gain as the nation’s finance minister laid out a plan for investing additional government pension assets in equities to help offset the expected low return from domestic bonds going forward—this naturally had a positive stock market effect due to the higher implied demand. The U.K. and Europe ended up with positive returns to a lesser degree. Continue reading
Economic Update:
Stocks experienced more volatility last week over concerns of slowed global growth. Looking at the sectors, utilities outperformed with a half-percent gain, while financials and health care lost several percent more than the market. Momentum stocks (i.e. last year’s winners, such as biotech, social media and 3-D printing) stalled and have moved negative over the past month, with an especially poor day Thursday. Then again, their valuations were getting a bit rich. Continue reading
LSA PORTFOLIO REVISIONS
The first quarter is over and this never ending winter seems to be coming to an end. LSA will be making revisions to our strategies over the next four weeks. Revisions will begin posting online starting Friday April 11th and wrap up May 2nd. Please note that we are targeting TWO different trade dates for all portfolios, but will be posting the revisions prior to trading them to give advisors ample time to prepare. Below is a schedule of when the revisions will be posted to the LSA website as well as the targeted trade date.
Here is the schedule of release dates. Please login to the LSA site to view all changes:
Round 1 TRADE DATE IS SCHEDULED FOR April 21st, 2014.
Friday April 11th, 2014: (After Market Close)
§ PC Tax Efficient
§ Allianz VA
§ AXA VA, Hartford VA
§ ING Golden Select VA
§ ING VUL
Monday April 14th , 2014: (After Market Close)
§ Jackson National VA
§ Jefferson National VA
§ Lincoln VA
§ Metlife VA
§ Nationwide VA
§ Ohio National VA
§ Pacific Life VA
Round 2 TRADE DATE IS SCHEDULED FOR April May 5th, 2014.
Monday April 21st, 2014: (After Market Close)
§ Protective Life VA
§ Prudential VA
§ Security Benefit VA
§ Sun Life VA
§ TransAmerica VA
§ Valic VA
§ Socially Responsible
Monday April 28th, 2014: (After Market Close)
§ Private Client
§ PC Blended
§ Schwab NTF
§ Bear Market Entry
§ Cautious Bear Plus
§ American Funds
§ Fidelity
§ ETF
§ DFA
The reason for revisions:
Volatility continues to dominate in 2014 and it is becoming clear that there is a shift that is occurring in the market place that will once again play in the favor of active management. We are taking this opportunity to revisit a few issues:
1. Downside protection – LSA is always looking to provide protection if we were to experience a market shakeout. There are numerous economists and portfolio managers that believe current market levels are high and a pullback is highly probable. It was nice to see the portfolios protect well in January as equity markets were sliding. LSA is taking this as an opportunity to solidify the downside protection is in place. As we enter earnings season it will be important to identify forward sentiment from companies to see how much of an impact this winter had on the economy.
2. Identify top managers – as this baton of active vs passive managers seems to get passed back and forth we believe that the next several years will benefit active managers with ability to protect and add alpha. LSA is constantly monitoring numerous funds and these revisions will address some of the better performers that are available on multiple platforms.
3. Continuing to address the conundrum of fixed income – although bonds have rallied nicely the first quarter of 2014, we continue to believe that the ten year interest rate is going find its way back to a more normalized historical level. The upcoming revisions will continue to target the general themes that have been laid out in the June revisions and will introduce (when available) fixed asset classes that we believe will continue to weather this rising rate environment.
As always, the rationale and a more detailed explanation for the changes and all of the new fund fact sheets can be found on the LSA website under “Portfolio Management” as they are posted.
LSA will also be updating our VA rider restricted allocations in Dropbox over the next few weeks and we will be providing updates as content is populated. LSA is also pleased to announce that we will be rolling out NEW allocation sheets to give advisors more content and detail to work from. We will be introducing these new changes next week on a recorded webinar.
As always, video commentary discussing the changes will be posted as revisions are being posted online. We will e-mail a link to the replay. If you have any questions please feel free to contact us at support@LSAportfolios.com or call us at (866) 581-5724.
Domestic markets continued higher, with additional Fed promises of more accommodative policy, but were outshined by many foreign names. Several more speculative areas that performed well last year, such as biotech and social media, have experienced negative results as of late.
The Friday jobs report was decent—neither exciting nor disappointing, so market reaction was tempered. Other economic data was similarly mixed, as poor winter results are being sloughed off.
Markets were generally higher on the week, led by additional Janet Yellen comments committing to a continued easy policy. In the S&P, industrial, energy and materials stocks led, while technology lagged with negative returns on the week. We’ve certainly seen additional weakness from some of the market’s highest beta sectors, such as biotech and social media, which performed so well in 2013 and now seem to be coming back to earth a bit. This is also seen in recent strength in large-cap versus small-cap. Continue reading
Economic data remained mixed, but some of the winter effects of the past few months appear to be dissipating. An important test in coming weeks/months will be how the much more extreme-than-average winter normalizes and if economic data can similarly regain better traction.
Although tensions seem to have cooled to a simmer in recent weeks, investors are continuing to monitor the Ukraine/Russia situation closely, as an unexpected development here is sure to rattle markets. In the meantime, upcoming corporate earnings may provide enough excitement for the time being.
U.S. stocks were mixed during the week, with large-cap outperforming smaller-caps by the widest margin in some time. From a sector perspective, energy and utilities stocks gained a few percent while consumer discretionary, financials and materials lagged over a percent. In particular, more speculative names in biotech and social media have experienced difficult weeks as of late. Facebook announced a $2 billion acquisition of a virtual-reality goggle manufacturer, which caused some investors to scratch their heads due to the lack of a proven product. Along the same lines, the Russell 2000 is currently trading at one of the larger valuation premiums over the S&P in many years (approaching 25%), which reaffirms our underweight to the asset.
In developed markets, Japanese stocks gained +4%, followed by Europe and the U.K. with smaller positives (still outgaining U.S. stocks). Emerging market stocks were the best performing assets of the week, with a recovery in Turkey, Brazil, South Africa and India—the problem children of recent months. Most recently there does seem to be a bit of a shift in flows away from more speculative U.S. issues into better-valued foreign equities, such as emerging markets, although such flows can be finicky and fast-changing.
Bonds experienced a moderately positive week, with long governments and investment-grade corporate credit leading the way, and high yield bonds just behind. Emerging market bonds performed even better than that, while developed market debt performed in line with U.S. bonds.
Real estate was led by a recovery in Asian REITs, up nearly 3%, with European REITs just behind and U.S. REIT categories roughly flat on the week. Mortgage REITs were the worst-performing segment, losing over a percent.
Commodities were generally higher on the week, led by continued gains in coffee and sugar (the former up over 50% YTD already), as well as natural gas, copper and crude oil… so seemed the majority of the closely-watched contracts gained, with the exception of gold, which lost -3% as risk-off sentiment eased.
| Period ending 3/28/2014 | 1 Week (%) | YTD (%) |
| DJIA | 0.12 | -0.97 |
| S&P 500 | -0.44 | 1.00 |
| Russell 2000 | -3.45 | -0.71 |
| MSCI-EAFE | 2.11 | 0.05 |
| MSCI-EM | 4.23 | -1.77 |
| BarCap U.S. Aggregate | 0.26 | 1.87 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2013 | 0.07 | 0.38 | 1.75 | 3.04 | 3.96 |
| 3/21/2014 | 0.06 | 0.45 | 1.73 | 2.75 | 3.61 |
| 3/28/2014 | 0.04 | 0.45 | 1.74 | 2.73 | 3.55 |
Just in time for spring break, last week’s economic data seem to suggest that the economy is bouncing back after two months’ of extreme weather.
(-/0) Empire State Manufacturing Survey in March suggested business conditions for New York manufacturers continue to improve modestly. The general business conditions index inched up to 5.61 from February’s 4.48. However, the index was slightly below a consensus-expected 6.5. The index for new orders rebounded from the prior month’s negative level to 3.13 in March, signaling that the severe weather’s negative impact is dissipating. In terms of the survey response to expectations six months ahead, the capital expenditures index improved 14 points to 16.5 from the prior month.
(+) Philadelphia Fed Business Outlook Survey Index increased to 9.0 in March, exceeding the consensus forecast of 4.0. The strong uptick in the level of general business activities reflected a strong rebound from February’s -6.3 reading, which was mainly due to weather-related weakness. Indicators of new orders, shipments, unfilled orders, and average employee workweek all turned positive. Driven by expected higher sales and the need to replace equipment, nearly 49% of the surveyed firms said they planned to boost their capital spending during the next six months.
(+) Industrial production for February rose six-tens of a percent month over month, exceeding a consensus-expected monthly increase of 0.2%. It completely reversed from January’s poor reading of -0.2% due to extreme weather. Within major market groups, consumer durables goods’ output increased by 2.1%, including a 4.6% jump from the production of automotive products. The capacity utilization rate for total industry in February was up from 78.5% in January to 78.8%. Its long-run average for the last four decades (1972 to 2013) is 80.1%, 1.3% above current total capacity utilization.
(0) The headline Consumer Price Index rose one-tenth of a percent in February compared to January. Excluding food and energy, the core CPI index also increased one-tenth of a percent as the market expected. The food index rose 0.4%, its largest monthly increase since September 2011. Meanwhile, the energy index declined 0.5% due to a decrease in the gasoline index. Over the last 12 months, the headline CPI index grew 1.1% and the core CPI index was up 1.6%. Although both measurements are still within the Fed’s 2% target, there is evidence suggesting pockets of segments experienced some inflationary pressure, such as food away from home, shelter, the index for meats, poultry, fish, and eggs, etc.
(-) Housing starts in February were at a seasonally adjusted annual rate of 907,000, a slight miss of the consensus view of 911,000. Single-family housing starts were up 0.3% from January’s annual rate of 581,000 to a rate of 583,000 in February.
(-/0) According to the National Association of Realtors, February existing-home sales were down 0.4% to a seasonally adjusted annual rate of 4.60 million from 4.62 million in January. The result was below the consensus-expected flat sales of 4.62 million. The median existing-home price increased 9.1% year over year to $189,000 for all housing types. The negative impact from the unusual cold weather continued to point to weaker existing home sales, particularly in areas heavily hit by weather. For example, existing-home sales in the Northeast fell 11.3% in February sequentially and declined 12.7% from a year ago.
(0) Initial jobless claims for the week ending March 15 came in at 320,000 after seasonal adjustment. The reading was in line with the consensus-forecasted figure. The four-week moving average was 327,000, a decrease of 3,500 from the prior week. During the comparable week in the prior year, the initial claims figure was 341,000, 6.6% worse than current initial claims.
Continuing claims for the week ending March 8 came in at 2,889,000, which was also in line with the 2,880,000 expected. The total number of people claiming benefits in all programs for the week ending March 1 was 3.35 million, which was roughly 2 million less than 5.37 million persons claiming benefits in the comparable week in 2013.
| Period ending 3/21/2014 | 1 Week (%) | YTD (%) |
| DJIA | 1.48 | -1.09 |
| S&P 500 | 1.38 | 1.45 |
| Russell 2000 | 1.07 | 2.84 |
| MSCI-EAFE | 0.11 | -2.02 |
| MSCI-EM | 0.78 | -5.76 |
| BarCap U.S. Aggregate | -0.39 | 1.60 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2013 | 0.07 | 0.38 | 1.75 | 3.04 | 3.96 |
| 3/14/2014 | 0.05 | 0.36 | 1.55 | 2.65 | 3.59 |
| 3/21/2014 | 0.06 | 0.45 | 1.73 | 2.75 | 3.61 |
Fed Note:
The FOMC meeting that finished up today didn’t offer any radical changes from previous policy—this being the first with Janet Yellen as chair. Tapering of bond purchases is slated to continue, with another reduction of $10 billion per month, which takes us to a Fed purchase pace of $55 bil./month of Treasury and MBS (at that rate, the wind-down will wrap up later this year).
Comments about the economic environment were focused on the impacts from winter weather, which added a bit of a ‘pothole’ into the recovery from a data standpoint. Based on rough estimates from outside/non-Fed economists, about half of the assumed 1% decline in GDP growth can be blamed on winter weather, although, due to so many crosscurrents, this is difficult to measure precisely. Otherwise, the statement was along the same lines as those of previous meetings, noting general continued improvement.
Another issue of interest was how the committee would approach nearing the 6.5% unemployment threshold (the answer: they removed the reference completely, using ‘maximum employment’ as an objective instead). One out they have is that inflation is not quite up to their target, so the FOMC can continue their accommodation on that basis, but it’s also been speculated (and confirmed today) that qualitative ‘forward guidance’ language might be increasingly used to allow for a longer period of easing and lessened reliance on numerical targets. As it stands, current market estimates are calling for no action on rates until late 2015. Continue reading
(0) Retail sales numbers for February came in similar to expected, gaining +0.3% relative to consensus estimates calling for a +0.2% increase (and the first positive reading since November). The core component of the report also rose +0.3% compared to an expected +0.2%. However, January and December core retail sales were revised downward by -0.2% to -0.3%, which cast more of a negative tone to the neutral result. For February specifically, sporting goods and non-store retailers (we can just call this ‘online retail’ for simplicity’s sake, as that’s what it is mostly comprised of) led with gains of a few percentage points and rebounded from January. All-in-all, considering the revisions, the overall report was neutral—neither terrible nor outstanding. In related news, same-store sales, per Johnson/Redbook, rose 2.5% on a year-over-year basis with consumer traffic increasing.
(-) Import prices gained +0.9% in February, which surpassed the expected +0.5% figure. Much of this was the result of a +4% gain in petroleum prices during the month (a major factor in this series), while other segments, such as autos and capital goods were generally flat, which provided a better indicator of core conditions. Prices over the past twelve months are down -1.1% on the headline level and -0.6% ex-fuel, which is obviously the opposite of an inflationary issue.
(0) The February producer price index came in weaker than expected, falling -0.1% compared to an anticipated increase of +0.2%. Core PPI, excluding food and energy, fell -0.2% relative to an expected +0.1% increase. The primary downward driver was from the trade services group—an indirect measure of wholesaler/retailer margins—which fell by -1%. Notably, this was centered on the apparel margins area, which may or may not have been weather-related (we would assume it was). Over the past twelve months, headline and core have increased +0.9% and +1.1%, respectively, which is below CPI and is an obvious indicator of low inflationary influences in the producer process.
(0) Total business inventories for January rose +0.4%, on par with expectations, and December growth was revised upward by tenth to an equivalent amount. The more sporadic segments of autos and drugs both gained over +2% and contributed to the largest gains.
(-) The NFIB small business optimism survey for February came in at 91.4, which was a drop from the prior month’s 94.1 and underwhelmed the consensus estimate of 93.8. Expectations for real sales, economic improvement and plans to boost employment were all down by several points. Then again, bad weather may have played a role in this, but we’ll have to see next month’s report to confirm.
(-) The Univ. of Michigan sentiment survey for March fell to 79.9 from February’s 81.6 and underperformed the forecast of 82.0. Consumer assessments of current conditions rose a bit, while future expectations worsened. Inflation expectations for the near and longer-term were generally unchanged from a few tenths hovering around the 3% level.
(-) The government JOLTS report for January showed 3,974k job openings, which underperformed the expected 4,015k. The hiring rate was an unchanged and generally low-for-the-business-cycle 3.3%. The layoff/discharge rate rose a tick to 1.3%. and quit rate fell a tenth to 1.7%—both of which being in the opposite direction of desired.
(+) Initial jobless claims for the Mar. 8 ending week fell 9k to 315k, better than the estimate of 330k. Continuing claims for the Mar. 1 week also fell to 2,855k from 2,903k the prior week and expected result this week. It appears winter-type disruptions are minimizing.
| Period ending 3/14/2014 |
1 Week (%) |
YTD (%) |
| DJIA |
-2.29 |
-2.53 |
| S&P 500 |
-1.91 |
0.07 |
| Russell 2000 |
-1.77 |
1.75 |
| MSCI-EAFE |
-3.06 |
-2.13 |
| MSCI-EM |
-3.00 |
-6.48 |
| BarCap U.S. Aggregate |
0.56 |
2.01 |
| U.S. Treasury Yields |
3 Mo. |
2 Yr. |
5 Yr. |
10 Yr. |
30 Yr. |
| 12/31/2013 |
0.07 |
0.38 |
1.75 |
3.04 |
3.96 |
| 3/7/2014 |
0.06 |
0.38 |
1.65 |
2.80 |
3.72 |
| 3/14/2014 |
0.05 |
0.36 |
1.55 |
2.65 |
3.59 |
LSA Connect 