There’s always a graph

In a big wide world, there’s always a graph, floating around on the internet, that looks scary, and is offered as a definitive/difficult-to-refute rationale to drop ones’ risk exposure.

Consider the below: compelling colours, big arrows, straightforward interpretation. A correction is coming!

Now, I would not suggest using this as the “one rule to guide you” for DAA, akin to Tolkien’s “one ring to rule them all”. I think it far better to a) consider equity risk premia b) a broader mix of economic aggregates c) earnings.

But still, putting some words to it, we’d suggest that the US is expensive, in turn because the economic underfootings are so strong. The world ex-US is much cheaper, and on far weaker economic underfootings. We own both (US equities, and ex US equities) with a preference (DAA tilt) at the margin to the cheaper pockets of the world.

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Please note that past performance is not a reliable indicator of future performance.

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