Equity risk premia
The ERP is looking a fraction better post the recent drawdown (which is really just another way of saying the same thing).
The various measures of ERP are useful to consider (e.g. this one adjusted for COVID, this one adjusted for cash payments etc) but really it is the co-movement and average level we are after.
Add to this ERP mix a risk free rate of ~3% and you’ve got some decent ex-ante returns.
If markets do sell-off, heavily, over the next few weeks as the tightening cycle really gets underway, it will represent a good opportunity to reallocate from our presently moderately defensive positioning.
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