Report Detail Summary

The LJE Asset Allocation Process: Fourth Quarter 2020 Performance and First Quarter 2021 Outlook

January 04, 2021

The LJE Asset Allocation Process strives to accomplish these objectives. First, it summarizes in a logical and consistent way the investment choices recommended by our assessment of the coming economic environment. Second, we strive to provide in straightforward, plain English an explanation of our views and the rationale for the tilts to the portfolio. The aggregate data masks the pandemic distributional effects on the fortunes of different economic sectors. Technology and other growth sectors fared quite well and flourished during the pandemic. Other sectors such as restaurant , services and sectors that we could classify as value sectors, languished during the pandemic. Nevertheless, the economy showed some resilience and when unimpeded a tendency to return to its natural equilibrium. Add to this the development of the COVID vaccine in record time and the near-term economic prospects are even brighter. The vaccine will accelerate the return to normalcy and improve the employment in the sectors that suffered the most during the pandemic. This outlook bodes well for a continued economic recovery/expansion and in particular the fortunes of the value sectors. The incoming Biden administration will have the wind at its back during the early going. It only needs to convince the people that the vaccine is safe. The LJE Allocation is a two-step process. First, our quantitative model estimates the probability that one asset class will outperform another. Second, we tilt the asset class benchmark allocation in direct proportion to the probability estimates. The net effect of the probabilities is that allocation to fixed income at 36.2% is well below the 40% benchmark allocation . The 29.6% allocation to international stocks is slightly below the 30% benchmark allocation. The reduced exposure to bonds and international equities yields an increase in the exposure to the domestic stocks in the portfolio. The strategy increases the allocation to domestic stocks to 34.2% relative to its 30% benchmark allocation.

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The ValueTiming™ strategy is based on the assumption that politicians and policymakers have particular views of the world, and that they will in general adopt policy measures that are consistent with these views.

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