Yesterday, over huevos rancheros at a local vegetarian restaurant (we allow ourselves one meat-free meal per month), a pupil asked us to describe our investment style. We said global allocation, and he inquired as to our current equities exposure. We said it’s 33% (see our previous entry), adding, “Which is about as low as you would want to go, in terms of relative stock ownership.”

And that got us to thinking: How much lower? How does the current allocation of the GOCMX compare to, say, the long-term average allocation, for each of the five major asset categories?

Amazingly, we had never thought to exhibit or even to calculate the relative over/under-representation of the index’s components. Or more likely, we had thought about it several times — while preparing a shaker of Martinis, perhaps, or picking up our laundry — only to have the idea flit away (or drowned) before doing anything about it.

Once we got the momentum, though, it was an easy several minutes of coding and we had the solution, and exhibits, integrated into our model. Voilà:

So as you can see, the GOCMX is currently indicating that a 12% under-representation of equities, compared to the long-term equities allocation, has resulted in the highest risk-adjusted returns over the last calendar year.

Working backwards from the index’s current allocation and these descriptive deltas, one could arrive at the long-term allocations that have typically described optimal risk-adjusted portfolios, since the index’s inception. If you are serious about lowering a portfolio’s or SMA’s risk exposure using an objective, cost-effective methodology, click here for info on receiving frequent updates to the Stracia™ GOCMX™, for a small fee. ♦