Asset Allocation Table
Elm Baseline
Current Target
Target Weight
Secondary Return
Return† Risk‡ Past Quarter

Baseline Weights: The Baseline defines the strategy's 'average' asset allocation over a long period of time, and serves as the reference point for Long-Term and Trend deviations. The Baseline represents the asset-allocation that a prospective investor would choose were they seeking a static strategy. See here for more information about the Baseline construction methodology.

Target Weights:The target weights used in the periodic portfolio rebalancing. Portfolios may not be rebalanced exactly to target, as Elm's execution engine tries to find a parsimonious set of trades which get as close as possible to target weights while also minimizing transaction costs, tax costs, etc.

Target Weight Breakdown:

  • Expected Return: The target weight resulting only from the Expected return-based metric. We want target weights to be proportional to the Expected excess returns, while staying within 2/3 above or below the bucket's Baseline Weight.
  • Risk: The deviation caused by the Risk Metric. We want a positive Deviation in lower-risk environments, and vice versa. The size of Risk-based deviation can be at most 1/3 of the bucket's Baseline Weight.
  • The Target Weight is equal to the Return + Risk components in the Breakdown.

Return Metric:

  • Equities: 1 / CAPE - 10y TIPS Real Yield (Excess Expected Return in excess of the long-term risk-free rate)
  • Fixed Income: 10y TIPS Real Yield
  • For a small number of asset buckets we use slightly different signals than described above, and a few buckets use secondary metrics as well. Please contact us for details if you're interested.

Risk Metric:

  • We use a momentum signal as a proxy for the risk-environment: positive momentum indicates a low-risk environment, negative momentum indictse a higher-risk environment.
  • Balanced: Spot Asset Class Total Return Index / 1y-Avg Total Return Index
    (All indexes adjusted for inflation and risk-premia)
  • All-Equity: [Spot Asset Class Total Return Index / 1y-Avg Asset Class Total Return Index] - [Spot Baseline Total Return Index / 1y-Avg Baseline Total Return Index]
    (All indexes adjusted for inflation and risk-premia)
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