Monday April 7, 2025
Equity Model Updates
Today we are implementing the following updates to our Strategic Equity and Strategic US Equity models to take advantage of market volatility.
We are adding Vanguard Russell 1000 (VONE) and funding it with iShares Russell 1000 ETF (IWB). We are also taking the opportunity to revert back to strategic weights across all holdings. These changes are based on the following rationale:
- On the week ending April 4th, US Large Cap equities suffered their 7th worst percentage change week in the post-WWII era. The deleveraging of US equities on trade policy news affords a unique opportunity to tax-loss harvest the IWB position from cost bases incurred in 2024. VONE also has half the expense ratio of IWB, allowing us to decrease the aggregate expense ratio of the model portfolio.
- New Weights – Strategic Equity:
- IDEV – iShares Core MSCI International Developed Markets ETF | 25%
- VONE – Vanguard Russell 1000 ETF | 35%
- RFFC – ALPS Active Equity Opportunity ETF | 30%
- IJH – iShares Core S&P Mid-Cap ETF | 7.5%
- IJR – iShares Core S&P Small-Cap ETF | 2.5%
- New Weights – Strategic US Equity:
- VONE – Vanguard Russell 1000 ETF | 46.67%
- RFFC – ALPS Active Equity Opportunity ETF | 40%
- IJH – iShares Core S&P Mid-Cap ETF | 10%
- IJR – iShares Core S&P Small-Cap ETF | 3.33%
Monday, March 10, 2025
Equity Model Updates
Today we are implementing the following updates to our Tactical Equity and Tactical US Equity models to take advantage of market volatility.
We are adding Avantis US Large Cap Value (AVLV) and funding it with half of the weight in Schwab US Dividend Equity ETF (SCHD). These changes are based on the following rationale:
- Focused on Defensive Value, the Schwab US Dividend Equity ETF held up well in the last bout of equity market volatility, outperforming the S&P 500 Index by 9% year-to-date.
- Meanwhile, the Avantis US Large Cap Value ETF focuses on US Value equities with a Quality overlay and the fund has maintained a higher beta to the broad equity market compared to Dividend Value. As a result, the fund underperformed SCHD by 6% year-to-date.
- In our quantitative asset allocation research, we’ve identified a mix of Dividend and Profitability-focused Value investing as an optimal approach to generating expected returns from the broad market US Value factor. In times of market stress, it pays to own Defensive Value. We’re using the current market volatility as an opportunity to tactically rebalance back to the optimal mix of Value types.
- New Weights:
- IDEV – iShares Core MSCI International Developed Markets ETF | 27%
- SCHD – Schwab US Dividend Equity ETF | 10%
- AVLV – Avantis US Large Cap Value ETF | 10%
- JQUA – JPMorgan US Quality Factor ETF | 20%
- SCHG – Schwab US Large-Cap Growth ETF | 20%
- IJH – iShares Core S&P Mid-Cap ETF | 9%
- FLCH – Franklin FTSE China ETF | 2.5%
- IGV – iShares Expanded Tech-Software Sector ETF | 1.5%
- New Weights:
- SCHD – Schwab US Dividend Equity ETF | 14.19%
- AVLV – Avantis US Large Cap Value ETF | 14.18%
- JQUA – JPMorgan US Quality Factor ETF | 28.37%
- SCHG – Schwab US Large-Cap Growth ETF | 28.37%
- IJH – iShares Core S&P Mid-Cap ETF | 12.76%
- IGV – iShares Expanded Tech-Software Sector ETF | 2.13%
Tuesday, March 4, 2025
Equity Model Updates
Today we are implementing the following updates to our Tactical Equity and Tactical US Equity models as we anticipate a revival of China equities, greater potential for slower economic growth and a more challenging global oil supply and demand environment.
Tactical Equity Model
We are adding Franklin FTSE China ETF (FLCH) and removing Energy Select Sector SPDR (XLE). These changes are based on the following rationale:
- Having been in a period of deepening deflation, China’s stock market remains significantly undervalued. However, China’s central bank is expected to reverse deflation with its newly announced “moderately loose” stance—marking the first shift toward expansionary fiscal policy since 2011.
- Meanwhile, China is positioning itself as a regional and global leader in AI technology, with significant investments in semiconductor development, large-scale AI models and government-backed initiatives to drive innovation.
- Having been underweight China and Emerging Markets for nearly two years, we’re adding 2.5% to China equities. The source of funds will come from another portfolio diversifier, Energy equities, as anticipated slowing economic growth and increases in global oil supply reduce excess return expectations.
- New Weights:
- IDEV – iShares Core MSCI International Developed Markets ETF | 27%
- SCHD – Schwab US Dividend Equity ETF | 20%
- JQUA – JPMorgan US Quality Factor ETF | 20%
- SCHG – Schwab US Large-Cap Growth ETF | 20%
- IJH – iShares Core S&P Mid-Cap ETF | 9%
- FLCH – Franklin FTSE China ETF | 2.5%
- IGV – iShares Expanded Tech-Software Sector ETF | 1.5%
Tactical US Equity Model
We are removing the Energy Select Sector SPDR (XLE) ETF and adjusting weights to mirror the US exposures of the Tactical Equity model portfolio.
- Energy equities have greater potential to be out of favor in a period of slowing economic growth and expected increases in global oil supply – both are current base cases.
- New Weights:
- SCHD – Schwab US Dividend Equity ETF | 28.37%
- JQUA – JPMorgan US Quality Factor ETF | 28.37%
- SCHG – Schwab US Large-Cap Growth ETF | 28.37%
- IJH – iShares Core S&P Mid-Cap ETF | 12.76%
- IGV – iShares Expanded Tech-Software Sector ETF | 2.13%
Fixed Income Model Updates
Today we are implementing the following updates to our High Yield Fixed Income and Tax-Exempt Core Fixed Income models to enhance active credit management in an anticipated slower economic growth environment with potentially more challenging credit markets and lower short-term rates. These updates aim to position the portfolios for potential outperformance in the evolving fixed income landscape of 2025, balancing yield, duration and active management opportunities.
High Yield Fixed Income Model
We are adding Franklin High Yield Corporate ETF (FLHY) and reducing Franklin Senior Loan ETF (FLBL) and SPDR Portfolio High Yield Bond ETF (SPHY) and removing SPDR Bloomberg 1-3 Mo. T-bill (BIL). These changes are based on the following rationale:
- Active management in fixed income has shown potential to generate alpha over time, particularly in credit-focused sectors.
- FLHY is an actively managed high yield ETF with flexibility to invest across various sectors, quality ratings and maturities versus the passive Bloomberg High Yield Corporate Index.
- With a potential economic slowdown, the Federal Reserve may lower rates, making it prudent to incrementally add duration now.
- New Weights:
- SPHY – SPDR Portfolio High Yield Bond ETF | 60%
- FLHY – Franklin High Yield Corporate ETF | 25%
- FLBL – Franklin Senior Loan ETF | 15%
- BIL – SPDR Portfolio 1-3 Month T-bill ETF | 0%
- Expected Impacts:
- Increased distributable yield (primarily due to the BIL ETF removal).
- Modest increase in duration (still under 3 years).
- Slight increase in model expenses by an estimated 5 bps.
Tax-Exempt Core Fixed Income Model
We are increasing allocations to the active ALPS Intermediate Municipal Bond ETF (MNBD) and the passive iShares National Muni Bond ETF (MUB), while reducing JPMorgan Ultra-Short Municipal Income ETF (JMST). This decision is based on:
- Active management in the municipal market is expected to provide meaningful alpha over passive indices due to the increased market fragmentation, diverging credit prospects and uncertainty over evolving tax policies of local governments.
- New Weights:
- MNBD – ALPS Intermediate Municipal Bond ETF | 60%
- MUB – iShares National Muni Bond ETF | 35%
- JMST – JPMorgan Ultra-Short Municipal Income ETF | 5%
- Expected Impacts:
- Increased distributable yield (primarily due to the JMST reduction).
- Modest increase in duration (to approximately 5 years).
- Slight increase in model expenses by an estimated 1 bps.
Tuesday, July 16, 2024
Tactical Equity Model Updates
Today we made the following changes to our Tactical US Equity and Tactical Equity model portfolios:
- Tactical US Equity: Sold 2% of the existing Schwab US Large Cap Growth ETF (SCHG) allocation and bought iShares Expanded Tech-Software Sector ETF (IGV).
- Tactical Equity: Sold 1.47% of the existing Schwab US Large Cap Growth ETF (SCHG) allocation and bought iShares Expanded Tech-Software Sector ETF (IGV).
The market’s focus on certain semiconductor and mega cap technology equities, prominent holdings in our SCHG allocation, have led to their significant returns year-to-date relative to the software industry and as a result have left it with an attractive entry point on a relative basis within the Information Technology sector. IGV is a passively managed ETF that allows for a targeted exposure to over 100 North American software companies in the technology and communication services sectors.
Due to these changes, we expect tracking error of these model portfolios to their respective broad equity benchmarks to expand only marginally. The net result is a diversification away from the prominent semiconductor, mega cap technology and media names and toward a broader focus across North American software.
- Tactical US Equity - New Weights as of 7/16/2024:
- Schwab US Large Cap Growth ETF (SCHG) | 28.1%
- Schwab US Dividend Equity ETF (SCHD) | 27.2%
- JPMorgan US Quality Factor ETF (JQUA) | 26.6%
- iShares Core S&P Mid-Cap ETF (IJH) | 12.9%
- Energy Select Sector SPDR Fund (XLE) | 3.1%
- iShares Expanded Tech-Software Sector ETF (IGV) | 2.0%
- Tactical Equity - New Weights as of 7/16/2024:
- Schwab US Large Cap Growth ETF (SCHG) | 20.5%
- Schwab US Dividend Equity ETF (SCHD) | 19.9%
- JPMorgan US Quality Factor ETF (JQUA) | 19.4%
- iShares Core S&P Mid-Cap ETF (IJH) | 9.4%
- Energy Select Sector SPDR Fund (XLE) | 2.3%
- iShares Expanded Tech-Software Sector ETF (IGV) | 1.5%
- iShares Core MSCI International Developed Markets ETF (IDEV) | 27.0%
Tuesday, July 2, 2024
Fixed Income Model Updates
Today we made the following changes to our Tax-Exempt High Yield Model Portfolio: adding the Franklin Dynamic Municipal Bond ETF (FLMI) and removing the VanEck Short High Yield Muni ETF (SHYD).
Active management in fixed income has consistently demonstrated the potential to generate alpha over time. In the high yield municipal bond sector, we believe now is the opportune moment to seek greater diversification and flexibility than what the Municipal High Yield Index offers. FLMI is an actively managed ETF that has the versatility to invest across various sectors, quality ratings and maturities within the vast 50,000-security municipal bond universe.
Due to the changes below, we anticipate that model expenses will decrease by approximately 2.5 basis points, bringing the total to 32.5 basis points. We expect distributable income to remain similar to the current model. The model portfolio will have a 50/50 weighting between active and passive management.
- Tactical US Core Fixed Income - New Weights as of 7/1/2024:
- SPDR Nuveen Bloomberg High Yield Muni Bond ETF (HYMB) | 50%
- Franklin Dynamic Municipal Bond ETF (FLMI) | 50%
- VanEck Short High Yield Muni ETF (SHYD) | 0%
Wednesday, April 10, 2024
Fixed Income Model Updates
Today we made the following changes to our Tactical US Core Fixed Income Model Portfolio. With the backup in Treasury yields, we took the opportunity to increase our holdings in the actively managed Janus Henderson Mortgage Backed Securities ETF (JMBS) by 5% and removed our passive corporate exposure as represented by the SPDR Portfolio Corporate Bond ETF (SPBO).
Mortgages were previously underweight, and the change today brings the portfolio to a near market weight versus the benchmark, without reducing yield, improving overall portfolio-rated quality with slightly reduced duration. We are more constructive on Agency mortgages versus Treasuries given their yield advantage and convexity properties. Corporate securities remain modestly overweight, but are now more concentrated in shorter duration buckets.
Active fixed income in general has added Alpha in the first quarter and we expect this may continue. Active and Passive weightings are now 50/50 in the Tactical model.
- Tactical US Core Fixed Income - New Weights:
- SPDR Portfolio Aggregate Bond ETF (SPAB) | 50%
- ALPS | Smith Core Plus Bond ETF (SMTH) | 40%
- SPDR Portfolio Corporate Bond ETF (SPBO) | 0% (-5%)
- Janus Henderson Mortgage Backed Securities ETF (JMBS) | 10% (+5%)
Tactical Strategies Updates
Today we made the third asset allocation change over the last year to our Tactical Grow & Preserve Strategies. With Global and US Equities up nearly 17% and 19%, respectively, since our last rebalance in October of last year, we took the opportunity to reduce our equity exposure back to strategy target weights, rebalancing into our Tactical US Core Fixed Income model to maintain constant risk exposure across all risk targets.
- Tactical Grow 80/20 - New Weights:
- Tactical Equity | 80%
- Tactical US Core Fixed Income | 18.1%
- High Yield Fixed Income | 1.9%
- Tactical Grow 65/35 - New Weights:
- Tactical Equity | 65%
- Tactical US Core Fixed Income | 30.3%
- High Yield Fixed Income | 4.7%
- Tactical Grow 50/50 - New Weights:
- Tactical Equity | 50%
- Tactical US Core Fixed Income | 43.3%
- High Yield Fixed Income | 6.7%
- Tactical Preserve 35/65 - New Weights:
- Tactical Equity | 35%
- Tactical US Core Fixed Income | 55.2%
- High Yield Fixed Income | 9.8%
- Tactical Preserve 20/80 - New Weights:
- Tactical Equity | 20%
- Tactical US Core Fixed Income | 67.3%
- High Yield Fixed Income | 12.7%
Tactical Equity Model Updates
Today we made the following changes to our Tactical Equity Model Portfolio. With the Global Equities rally year-to-date driven primarily by US Equities and only recently beginning to broaden, we took the opportunity to increase our position in the iShares Core MSCI International Developed Markets ETF (IDEV) by 3.6% using the US-focused style factor ETFs as a source of funds on a pro-rata basis. IDEV gives us cost effective exposure to major economies outside the United States, the most notable being Japan.
The Tactical Equity model has been overweight the United States since inception and remains positioned this way. This change brings the model in line with global country benchmark weights for certain developed markets where our capital markets assumptions are identifying the best potential risk and return opportunities. We are more constructive on International Developed markets, as the prolonged global manufacturing recession shows signs of ending in the midst of relatively depressed valuations. Japan’s equity market looks especially attractive given its cheap currency, solid nominal GDP growth and corporate governance reforms driving up return on equity.
- Tactical US Core Fixed Income - New Weights:
- iShares Core MSCI International Developed Markets ETF (IDEV) | 27.0%
- Schwab US Dividend Equity ETF (SCHD) | 20.7%
- Schwab US Large-Cap Growth ETF (SCHG) | 20.5%
- JPMorgan US Equality Factor ETF (JQUA) | 19.7%
- iShares Core S&P Mid-Cap ETF (IJH) | 9.6%
- Energy Select Sector SPDR ETF (XLE) | 2.5%
Wednesday, January 17, 2024
Today we made the following asset allocation changes to three of our Tactical Distribute Strategies to take advantage of the recent rally in core bonds and relative attractiveness of stable, income producing equities:
- Increased Tactical Equity Income segment model exposure back to long-term equity targets using the Tactical US Core Fixed Income and High Yield Fixed Income segment models as the source of funds.
- The changes were applicable to the following strategies: Tactical Distribute 80/20, Tactical Distribute 65/35, and Tactical Distribute 50/50.
- Collectively, the changes are intended to true up equity positions after a significant rally in bonds in Q4 of 2023. The recent divergence in risk-adjusted returns between bonds and dividend equities provides an opportunity to rebalance income generating exposure into the latter.
Friday, December 29, 2023
Core Fixed Income Model Updates
Today we made the following changes to our Strategic and Tactical US Core Fixed Income Model Portfolios with the addition of two actively managed ETFs. We feel the time is right in this economic cycle to add dynamic portfolio positioning capability and fundamental security selection in response to varied market and credit conditions. This is the proven specialty of the two ETF managers selected below.
The ALPS | Smith Core Plus Bond ETF (SMTH) and the Janus Henderson Mortgage Backed Securities ETF (JMBS) will replace certain passive building block components. We expect that in addition to higher yield potential net of fees, we believe these changes will lead to alpha generation over the passive indices, provide higher risk-adjusted returns, reduce the frequency of model changes, and provide better diversification.
- Strategic US Core Fixed Income – New Weights:
- SPDR Portfolio Aggregate Bond ETF (SPAB) | 50%
- ALPS | Smith Core Plus Bond ETF (SMTH) | 50%
- Tactical US Core Fixed Income – New Weights:
- SPDR Portfolio Aggregate Bond ETF (SPAB) | 50%
- ALPS | Smith Core Plus Bond ETF (SMTH) | 40%
- SPDR Portfolio Corporate Bond ETF (SPBO) | 5%
- Janus Henderson Mortgage Backed Securities ETF (JMBS) | 5%
Wednesday, October 18, 2023
Today we made the following asset allocation changes to our Tactical Global Energy Transition model portfolio to take advantage of medium term dislocations and improve risk reward based on the recommendations of the Investment Committee and approval by the co-CIOs:
- Rebalanced ETF holdings to original target weights at inception with the exception of ACES and GRID which are now 25% and 20%, respectively.
Our Global Energy Transition model thesis played out well over the last year as equity exposure to natural gas, oil, materials, industrials and the global carbon offset market offered diversification against the negative returns in the renewable energy ecosystems. The rebalance is expected to take advantage of depressed valuations in renewables while resuming a portfolio composition that more closely resembles our original target weights. Today's changes allow us to opportunistically rebalance into the de-carbonizing side of the global energy transition which we believe is a durable thematic investment.
Friday, October 13, 2023
Today we made the following asset allocation changes to our High Yield Fixed Income Completion Model, reducing overall risk based on the recommendations of the Investment Committee and approval by the co-CIOs:
- Reduced Senior Loans to 22.5% from 28.0%.
- Increased Treasury Bills to 7.5% from 5.0%.
- Increased High Yield to 70.0% from 67.0%.
Collectively, the changes modestly reduce exposure to actively managed senior loans, one of the best performing sectors of the credit markets over the past year, while improving the overall credit posture in the completion model. Our decision is driven by an overall view that while credit markets remain resilient, it is prudent to move up in quality in this higher rate environment which could begin to impact lower-quality investments disproportionately as refinancing risks increase.
Thursday, October 12, 2023
Today we made the following asset allocation changes to our Tactical Grow Strategies to take advantage of medium term dislocations and improve risk reward based on the recommendations of the Investment Committee and approval by the co-CIOs:
- Rebalanced all Tactical Grow Strategies to target Equity and Fixed Income weights.
Collectively, the changes are expected to slightly increase exposure to Equities back to our long term equity target weights after we had reduced Equity exposure in August when the risk/reward to Equities was less attractive. Our decision to increase our equity exposure is driven by a pull-back in equity markets, our optimistic view on a reaccelerating economy, and outperformance from our High Yield Bond exposure.
Friday, August 4, 2023
Today we made the following asset allocation changes to our Tactical Models & Strategies to take advantage of medium term dislocations and improve risk reward:
- Reduced 10% of pre-existing pro rata High Yield Fixed Income model portfolio exposure across all Tactical Strategies and replaced with Tactical US Core Fixed Income model portfolio.
- Reduced 3% of pre-existing pro rata Tactical Equities model portfolio exposure across all Tactical Strategies and replaced with Tactical US Core Fixed Income model portfolio exposure.
- Reduced 2.5% of pre-existing tactical Long Treasury exposure (SPTL) in Tactical US Core Fixed Income model portfolio and replaced with US Mortgage Backed Securities exposure (SPMB).
- Eliminated pre-existing tactical Communication Services sector exposure (XLC) in Tactical Equity and Tactical US Equity model portfolios and replaced with pre-existing US Dividend Equities (SCHD) exposure.
Collectively, the changes are expected to slightly reduce relative exposure to growth equities and low quality credit risk after a solid year-to-date relative return in both segments as headline inflation bottomed out in June. The divergence in returns between High Yield bonds and Dividend Equities provides an opportunity to rotate income generating exposure into the latter. The replacement of our Long Treasury tactical bet with US Mortgages reduces duration risk slightly in the Fixed Income segment, while still maintaining the barbell overweight to the short and long end of the Treasury curve (underweight the belly). The Tactical US Core Fixed Income model portfolio is expected to continue to yield more than the benchmark with less interest rate risk.
