Those of you familiar with Cape Ratio & Quant stuff know that there is a rather high correlation between CAPE ratio and 10 year forward returns (google 'Arnott cape ratio forecasting', or 'wealthfront cape ratio' to learn). Meb Faber has published some strategies on it which trade annually using country ETFs and have historically done well.
I was thinking of a strategy where we simply allocated all new funds for investment to whichever asset class (US, Foreign dev, Emerging) has the lowest cape ratio, and hold that position for 10 years (and then of course re-invest). This would keep things ultra tax efficient. I'm limited on CAPE data but I found charts which have US vs Emerging Market CAPE going back to 1990 (links below). So I scratched together a quick test in excel... Each Year Invest in Emerging or US, whichever has the lower CAPE. Hold position for 10 years. Contribute 10,000 annually. My results 1/1/1990-12/31/2016 are pretty good.
$260,000 total contributions $2,032,905 Ending balance IRR about 12.4%
That's where my skills end. Is there anyone with more data? Data for Foreign Dev. Maybe better data and the ability to generate some charts. Im sure the strat peaked in 08-09 and pretty much leveled off since then.
pg 5: http://ift.tt/2kckaWe pg 12: http://ift.tt/2iNzSL7
Submitted January 21, 2017 at 11:04AM by thatsizz http://ift.tt/2kcir38
