Resource Roundup: Research Affiliates Asset Allocation Tool

I am going to try and regularly do a quick post on some nice online resources available for investors.  The first of these is the asset allocation tool on the Research Affiliates website.

This site has a number of neat features.  First, you get the expected asset class returns.  You can select from a couple of different models.  On the right side of the screen you can also select from many different charts which contain various market data.

When you scroll down to equities you will see that the a couple of charts conveying CAPE ratio (cyclically adjusted price earnings or PE 10) information are available.  I particularly like the first chart which shows the current CAPE ratios for the global market, EAFE, emerging markets, and U.S. large and small capitalization stocks.

This chart also places the current CAPE ratio into context by showing the historical range of the ratio and giving the percentile of the current valuation within the range of past valuations.  If you want more granularity, such as country by country ratios, you can select “full asset mode” in the top left corner and then select the CAPE chart you desire.

There has been a fair amount of debate about reliance on CAPE, but I think the evidence is pretty strong that it correlates nicely with future returns over the long haul.  If you are interested in more about that debate, Meb Faber has a lot of relevant information on his site.  I personally like to double check the CAPE with other valuation measures such as market cap to GDP/GNP, price-to-book, or Tobin’s Q before concluding that a market looks cheap.

There are many other interesting sections of the RAFI site that you should explore, but I hope that you will find this particular aspect of their great asset allocation tool beneficial.  After all, fishing where the fish are is probably at least half the battle!