Why Did SACEVS Allocations Just Change So Much?

Subscribers asked why the Simple Asset Class ETF Value Strategy (SACEVS) signaled an apparently dramatic change in allocations at the end of June. SACEVS seeks a monthly tactical edge from timing three risk premiums associated with U.S. Treasury notes, corporate bonds and stocks:

1. Term – monthly difference between the 10-year Constant Maturity U.S. Treasury note (T-note) yield and the 3-month Constant Maturity U.S. Treasury bill (T-bill) yield.
2. Credit – monthly difference between the  Moody’s Seasoned Baa Corporate Bonds yield and the T-note yield.
3. Equity – monthly difference between S&P 500 operating earnings yield and the T-note yield.

At the end of each month, the Best Value version of SACEVS picks the most undervalued premium (if any). The Weighted version of SACEVS weights all undervalued premiums (if any) according to degree of undervaluation. Using monthly SACEVS inputs during March 1989 through June 2023, we find that: (more…)