We believe that asset allocation remains the most promising underexploited approach to improve portfolio outcomes. Innovations such as ETFs and increasing granularity of available index funds allow a lower cost and more flexible implementation than just a decade ago.
Our asset allocation decisions are primarily based upon the two most widely researched factors:
Value: Is the relationship of price to underlying fundamental information favorable?
Momentum: Has the price been rising?
Further, we evaluate these characteristics in two ways:
Relative: Within the same asset class – for instance comparing value of US equities to EM equities.
Absolute: An asset relative to its own history – for instance comparing the current P/E ratio of US equities to the prior distribution of P/E ratios for US equities.