Relative valuation as regime context for fund allocation

A single sleeve versus cash

A liquid investment universe can be treated as a relatively fixed pool. Ranked relationships among stocks, bonds, cash, and precious metals then describe how capital rotates rather than how it leaves the market. That map is the flow-of-funds-rotation: money leaving one sleeve and entering another.

Cash-as-reference uses cash, especially Treasury bills, as the hurdle because it is liquid, relatively low-risk, and carries a positive nominal return that other markets must be likely to beat. Intermarket-relative-valuation compares those liquid classes to one another and to cash so capital can be shifted toward the cheaper sleeve.

Mutual-fund sleeves let an allocator change an asset weight in one transaction, including a move from about 60 percent to about 47 percent of one sleeve, instead of rebalancing dozens of individual holdings.

Rank, not raw price, defines the regime

The percent-consideration-index is a relative attractiveness score that maps a market’s standing versus cash and other liquid assets onto a probability-style rank. Cross-market relationships are scored on a historical percentile basis over a database of about 1,400 weeks, so the current rank, not just a raw price comparison, defines the regime.

On the attractiveness scale, a reading of 50 is described as a fair market with about a 50 percent chance of beating cash. Readings of 20 or less flag a zone for minimal exposure. Late-1994 bond readings in the 90s were contrasted with large-cap stock readings under 30.

Fund sleeves and multi-year rotation

The monitored universe is split into distinct sleeves: US large-cap, US small-cap, and international large-cap equities; government, corporate, and municipal bonds; and separate South African versus non-South African gold shares. Emerging markets are omitted for lack of history.

Sleeves that usually move together can still rotate for years. In 1976 to 1979, large-caps were flat to down about 10 percent while small-caps rose about 80 percent.

Two horizons and a seasonal reset

Two horizons are used together: about six weeks to read short-term swings and about six months as the core investment window. The longer span was chosen empirically by scanning many weekly lengths.

Time-adjusted-valuation lets markets absorb a rate or price shock over weeks to months instead of instantly rewriting a fair-value level. Unlike models that instantly cut equity value after a 2 percent rise in short-term rates, this fundamental overlay lets markets neutralize over- or undervaluation as rates stabilize over a longer span.

Historical tests favored resetting portfolios at the ends of February, May, August, and November. Calendar-quarter ends were the weakest rebalance dates, coinciding with many stock-market turning points. That seasonal schedule is the calendar-rebalance-window.