Hello, this is David Spangler, vice president of model portfolios and mixed assets, and portfolio manager of the model portfolios. Today we're going to be talking about three actions we're taking in the model portfolios.

Overall, we remain constructive on the markets. We're overweight equity, overweight domestic and overweight large caps, and that remains. Within model portfolios and asset allocation, we always look to derive alpha through tactical asset allocation and strategic allocation and manager selection. But also important to long term investor returns is portfolio construction and risk management. These three actions fall in that bucket. Over a longer period of time, what we're trying to do is compound returns to derive superior investment performance. It's kind of simple math. If you're down 50%, you need 100% return to get back to even. So, what we're trying to avoid is larger drawdowns.

The first action that we're going to talk about is within large caps. Within large caps, we have two active managers. What we will be doing is removing one of the two managers, because over time, what we've realized is that this manager is no longer complementary and providing diversification benefits. In fact, when we look at some of the risk statistics of the manager, we find that the active share has decreased over time. Also, the manager's performance over the short term and longer term has also been unimpressive. So we will remove the one manager, Winslow, from the model portfolios and replace that with a passive option in large cap growth.

The second action that we'll be taking is within SMID caps. SMID caps over the last year have performed very well as an asset class. The manager in SMID caps has also performed well. However, when we look at the portfolio, we want to look at overall total risk and risk contribution of an asset class to the portfolio. What we will be doing in this area is reducing the SMID-cap manager and replacing with a passive option, which then allows us to maintain our overall neutral positioning on SMID caps but reducing overall portfolio risk.

The third action that we're taking is within international. Our overall investment thesis in international has not changed. We will remain underweight international overall. Within international, underweight developed and about equal weight in emerging markets to benchmarks. Over time, though, we found that regions have moved because of market performance. Japan has become a larger overweight and the underweight to Europe has become larger. What we plan to do is to rebalance by selling some Japan and buying some Europe. We will remain overweight Japan and we'll remain underweight to Europe, but closer to our overall targets, and underweight international total, and underweight developed and equal weight in emerging markets.