As you know, our GOCMX expresses optimal allocations among the major asset classes on a continuous basis. At any point in time — including this moment, now — it expresses the allocation to stocks, bonds, commodities, etc., that is currently generating the highest possible reward-to-risk ratio.

This information supports the global-allocation process more shrewdly than any competing approach of which we are aware.

The asset-category decision is the first, highest-level decision in the allocation framework. But it is typically one among many decisions. Knowing that the GOCMX’s current allocation to stocks is 34% (as it was on April 25) would allow us to allocate 34% of our total investable portfolio to a stock-index fund, such as the (U.S.-only) iShares S&P 1500 Index Fund (ISI), or the T. Rowe Price Global Stock Fund (PAGSX).

Alternatively, one could allocate the same 34% of capital to equities using a stock-picking approach (maybe you like Graham and Dodd, or Jim Cramer); or by ringing up one’s broker for ideas; reading the personal-finance literature; using a dart board; or asking our butler, Baines.

In short, the GOCMX itself tells us nothing about how disciplined or undisciplined, systematic or unsystematic, we should be within the five major asset categories that the index covers.

That is why we plan to introduce a range of Globally Optimized™ index products, the next of which may be a Size & Style Index™. We are developing a prototype of that product now. Here is a snapshot of its current readings.

As you can see, the Globally Optimized™ Size & Style Index™ (GOSSX) expresses the optimal, risk-adjusted allocation among growth/value and market-cap considerations. It uses the same risk-adjustment factors as the GOCMX. We use the information embedded in the new Size & Style Index™ to inform the allocation to equities. Thus, the GOSSX picks up where the GOCMX leaves off, when it comes to choosing among competing stock ideas.

As we mentioned back in January, we also plan to introduce an optimized sector index to the family sometime this year. Click for more information in on accessing the GOCMX data. ♦