January 01, 2022

All investors face capital-market risk. Managing that risk, evaluating opportunities in the context of an investor’s goals, and assessing specific investments efficiently requires broad, objective, close-to-the-capital-market thinking. An asset allocation framework does not need to be a black box that processes many statistical variables and then spits out an investment plan. It should be a logical framework that lays out choices for investors. 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. Parsimony in the presentation mandates that we focus on a few of the major asset classes, which in many ways does not do justice to the flexibility of the framework. The numbers show that during the fourth quarter the benchmark appreciated 2.85% while the LJE Asset Allocation utilizing the ETFs gained 3.34%. The LJE tilt portfolio outperformed the benchmark by forty-eight basis points during the fourth quarter. Our attribution analysis indicates that the fixed income allocation added to the LJE portfolio four basis points relative to the benchmark, the international allocation contributed another fifteen basis points while the US equity allocation added an additional twenty-nine basis points. During the four quarters of 2021 the LJE allocation outperformed its benchmark by one hundred and twenty-four basis points. Monetary policy, COVID, Regulations and Build Back Better color our outlook for next quarter and beyond.

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