The BakerAvenue Prudence Indicator™
The BakerAvenue Prudence Indicator illustrates our long term view on market risk and the corresponding approach we take to handling its macro, technical and fundamental opportunities. We believe the market can be categorized into one of the five states below; move the slider to learn more about our investment strategy in each of these states. Want to know the current Prudence Indicator position? Subscribe below
We are often coming from a level of elevated cash levels due to the market having turned negative. Under this condition we would increase equity exposure as the risk and reward of owning equities becomes favorable for investors. Under this condition there may still be some uncertainty in macroeconomic conditions and market fundamentals but the worse is usually behind investors. Under this condition market technicals tend to show signs of stability or bottoming.
Generally, we are underweight in equities. This zone typically represents elevated risk levels for investors. This may be due to a combination of unfavorable macroeconomic conditions, unattractive market fundamentals, or deteriorating market technicals.
We may move into a more defensive position by raising cash levels. This zone typically represents some uncertainty in macroeconomic conditions. Market fundamentals may be less attractive and there may be uncertainty on market trends.
We are invested in the markets. This zone generally represents positive macroeconomic conditions and attractive market fundamentals. Market technicals also tend to be favorable for investors in this zone.
We may reduce equity exposure by taking profits off the table. Cash will be tactically raised as we substantiate the sustainability of the market. Under this condition macroeconomic conditions may still be favorable but market fundamentals may suggest that valuations are at a premium. Market technicals may also show that markets are stretched and that investors are overly optimistic about the markets.