This paper is meant to provide a comprehensive overview of Elm’s investment process for Separately Managed Account clients.

The Cyclically-Adjusted Price Earnings ratio, also known as CAPE, has served many investors well - but here at Elm, we think it might be time for an update.

We are frequently asked about the tax efficiency of our dynamic value-and-momentum investment approach. The concern is often that with estimated turnover of 50% - 100% per year, returns might be less tax-efficient than a simple static, buy-and-hold type of approach, which is generally recognized as the gold-standard of tax-efficient investing.1

This article explores a globally diversified asset allocation strategy driven by value and momentum factors. The authors find that adjusting for value and momentum yields higher and better quality returns that are statistically and economically significant.

A thriving investment manager started his presentation to a roomful of potential investors saying: ‘Before I tell you what I do, I’m going to ask and answer the most important question you should put to me. “Who is losing the money that I’m going to make for you?”

For 15 years we have attributed the following quote to late economist Paul Samuelson, though, admittedly, we can't find a trace of it now. We remember him saying near the height of the technology bubble of 1999–2000, when stock prices were at astronomical heights, something along the lines of, "Market timing is an investing sin, and for once I recommend that you sin a little."

As commercial real estate investors, we are told time and again by investing legends that the key to long-term success is value investing — buy during times of uncertainty and pessimism, and sell during periods of “irrational exuberance.”

The consensus advice to investors for whom investing is not a full-time profession is this: buy a diversified portfolio of risky assets and hold for the long-term, while setting aside enough - parked safely in low-risk assets - to be able to weather the periodic market downturns.

We examine the after-tax performance, tax exposure, and tax efficiency of size, value, growth, and momentum equity styles. On an after-tax basis, value and momentum outperform, and growth underperforms, the market.

We document significant "time series momentum" in equity index, currency, commodity, and bond futures for each of the 58 liquid instruments we consider. We find persistence in returns for 1 to 12 months that partially reverses over longer horizons, consistent with sentiment theories of initial under-reaction and delayed over-reaction.

Value and momentum ubiquitously generate abnormal returns for individual stocks within several countries, across country equity indices, government bonds, currencies, and commodities. We study jointly the global returns to value and momentum and explore their common factor structure.

We study a dynamic asset allocation problem in which stock returns exhibit short-run momentum and long-run mean reversion. We develop a tractable continuous-time model that captures these two predictability features and derive the optimal investment strategy in closed-form.