March 31, 2024

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 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. Our outlook for the major economic drivers guides the LJE asset allocation process. Parsimony in the presentation mandates that we focus on the major asset classes, which does not do justice to the flexibility of the framework. The first quarter performance numbers show that during the quarter the benchmark appreciated 3.66% while the LJE Asset Allocation utilizing the ETFs gained 3.90%. The LJE tilt portfolio outperformed the benchmark by 24 basis points during the first quarter of 2024. For the second quarter our model estimates of a 50% likelihood of bonds outperforming U.S. equities. Hence, our model prescribes no change in the portfolio’s fixed income exposure relative to the benchmark. As a result of this, during the second quarter the allocation to fixed income remains unchanged at a 40% benchmark allocation. The equity allocation between domestic and international stocks is driven by the likelihood of foreign stocks outperforming domestic stocks. Collectively, we estimate the likelihood of international stocks outperforming the U.S. to be 46.3%. Thus, the model points to a below neutral exposure to international equities this quarter. Overall, the process yields an allocation to foreign equities that decreased to 27.76%, below its 30% benchmark allocation. The neutral or unchanged allocation to fixed income, and the reduced allocation to international stocks yields an increase in exposure to the domestic stocks. In turn the estimated probabilities of the domestic asset class point to a decreased exposure to small-cap stocks this quarter. The strategy increases the allocation to domestic stocks to 32.24% relative to its 30% benchmark allocation. Overall , the equity allocation to domestic and international equities remains unchanged relative to the benchmark allocation of 60%.

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