Our Approach

Our Approach

A simple, transparent and liquid framework for investing through the full cycle.

Most portfolios are built to be diversified on average. We believe a portfolio should be diversified at the right time. The economic environment drives most of the risk in markets, sectors come second, and individual securities last. So we start with the environment.

Share of history in each economic environment 4% BOX 1 13% BOX 2 3% BOX 3 6% BOX 4 56% BOX 5 7% BOX 6 3% BOX 7 7% BOX 8 2% BOX 9 INFLATION GROWTH

Share of all months since October 1957, the model's monthly record, spent in each environment.

The environment comes first

We classify every period since 1947 by its growth and inflation into one of nine economic environments. Each environment has rewarded a different mix of assets, and each has tended to persist long enough to act on. The strategy holds the portfolio that has historically suited the current environment and changes only when the environment changes.

Environments change

Where each decade lived

No two decades sit in the same mix of environments. The 1970s lived in high inflation, the 1990s in steady growth, the 2000s moved through four boxes. A portfolio built for one decade is built for the wrong one next.

Shading shows how much of each decade the model spent in each environment. Darker is more.

Where each decade lived 1950s 1960s 1970s 1980s 1990s 2000s 2010s 2020s Box 1 Box 2 Box 3 Box 4 Box 5 Box 6 Box 7 Box 8 Box 9

Two overlays for the extremes

Bubble Model watchlist, illustrative

Bubble Model

Illustrative. Over 100 indices ranked against two criteria; names above the first line go on the watchlist.

A quantitative measure of speculative excess that reduces exposure to assets whose prices have moved well beyond their history.

Bear markets since 1980 -27% 1980–82 -34% 1987 -20% 1990 -49% 2000–02 -57% 2007–09 -34% 2020 -25% 2022

Bear market trigger

S&P 500 peak-to-trough declines since 1980. The trigger exists for these.

A multi-factor signal that lowers equity exposure during sustained declines, with the aim of capturing equity market returns over time with lower volatility and smaller drawdowns.

What we hold

U.S. equities, U.S. Treasuries and cash. Nothing private, nothing illiquid, no leverage. Positions are held through low-cost index instruments so investors can see exactly what they own at any time.

U.S. equities

Held through low-cost index instruments.

U.S. Treasuries

Held through low-cost index instruments.

Cash

Nothing private, nothing illiquid, no leverage.

Why simple

Over ten years, fewer than one in ten active managers earns back even their own expenses. We do not try to pick securities or time short-term moves. We do a small number of things that history supports, and we do them consistently.

"Being diversified on average should not be the goal. Being diversified at the right time should be."

Britt Harris

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