Asset Allocation Research

Our Empirical Market Indicator is designed to assess the prospects for future equity market returns over a one-year horizon.  Its bottom-up read on the equity market is a unique input into the asset allocation process. We believe that the collective behaviors of investors and company managements are decisive in determining the long-term performance of equities as an asset class.  We capture the fear or euphoria of investors by scrutinizing if they’re herding excessively into pockets of safety or growth within the market.  When the are, we take the opposite stance. There’s no wisdom in crowds around turning points, just mass groupthink.

This granular read on what’s going on makes our tools a useful complement to the top-down frameworks that many asset allocators deploy. We’ve found that macroeconomic signals are largely ineffectual, because the way investors react to them is context-specific. Sometimes bad economic news is good for equities, like in the post-Crisis era, whereas at other times positive news confirms the prevailing sentiment and good really is good. Flip-flopping predictors, like politicians, should be handled with care.

Asset allocators think of us as their eyes and ears on what’s happening at the ground level within the equity market. Seemingly insignificant individual behaviors by companies, and the investors who trade them, can add up to powerful forces that shape the fate of the asset class. When there’s chaos all around that’s our cue to buy, and when everyone else thinks they see the future with great clarity, usually they don’t.