Asset Allocation Strategy: 2Q2018

Favor International vs. US
Overweight Energy and Financials
Underweight Consumer, Canada, Intl Small Cap


The Atlas asset allocation strategy performance slightly trailed benchmark for Q1.

Positive Contributors:
• Overweight Info Tech, Underweight Consumer
• Stock Selection, Preferred Stock
• Overweight Emerging Market, Underweight Canada

Negative Contributors:
• Overweight Europe
• Exposure to M&A, MLPs

Fear has returned to the market. Or perhaps a better way to state increased market volatility is the elimination of investor apathy. Regardless, factors the market has ignored (US equity valuations, increasing rates, tight credit spreads, inflationary pressure, reduced QE, protectionism) are now influencing investor psychology. The recent 10% correction in FAANG stock valuation has negatively affected momentum-only investors and could move market bias towards valuation fundamentals. As such, we continue to emphasize international markets over US markets. Since 2011, domestic markets have outperformed international markets. It seems inevitable to us the long-term trend will reverse to mean and offer an extended period of international markets outperforming. If interested, look at these additional charts that support our perspective.

Below is our current analysis of market opportunities and how we are positioning portfolios. We would be glad to discuss or answer any questions.


US Sector Return Estimates

The chart above shows our current evaluation of the sector choices available to US equity investors. This evaluation drives our allocation decisions. Markets which appear most attractive for investment are in the upper right.  Those sectors that have both good value and positive momentum.  Future real returns based on historical value norms are unappealing.

Support for Non-US stocks

US stocks have been doing well for the last 6 years. However, performance gaps are at historical extremes and we believe the cycle is turning. The market may begin to recognize our thesis of relative valuation attractiveness in Non-US markets. Rotation should   lead to improved performance by International markets.



US Sector Positioning

Reduced Info Tech weighting based on valuation.  Consumer and Real Estate underweight based on valuation. Overweight Financials, Energy, Utilities because of reasonable value and some momentum.  Telecom Services overweight based on value, though momentum is unattractive. Neutral-weight Small Cap, Underweight Mid Cap.

Regional Positioning Chart

Atlas portfolios in relation to the weights of the benchmark global equity index are depicted to the right.  The weighting preferences continued the trend we’ve implement most of the 24 months; reduced US exposure and increasing International weightings.  We’re underweight US equities versus both benchmark and International equities. Within International, we are overweight Europe and Emerging Markets while underweight Asia, Canada and Small Cap.

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We believe the information provided herein is reliable but should not be assumed to be accurate or complete.  The strategies described may not be suitable for all investors and may not be appropriate at all times.  Performance is for selected portfolios, while individual investment performance is dependent upon the portfolio(s) of investment.  The partners and associates of Atlas Capital Advisors are investors in Atlas portfolios.  Past performance is not a guarantee of future performance.  Opinions and statements are based on current market conditions as of the date of publication and are subject to change without notice. Nothing in this presentation should be construed as a solicitation to buy or sell securities.
Atlas Capital Advisors LLC is an independently owned SEC registered investment advisor. The firm manages client portfolios across a variety of asset classes including equities, bonds, currencies and derivatives. All client portfolios are separately managed in a variety of investment strategies. Atlas Capital Advisors LLC claims compliance with the Global Investment Performance Standards and a GIPS® compliant presentation is available upon request.



Asset allocation is the most important decision one can make as an investor. Each quarter, Atlas Capital Advisors updates estimates of the expected returns of each asset class, and adjusts allocations accordingly. We make these decisions in a systematic repeatable way using approaches grounded in academic evidence.

Foundations of Atlas Risk Asset Allocation

We are fundamental investors. We seek to increase weights in asset classes that are attractively priced, and reduce weights in those that are not. Attractively priced asset categories, with higher expected returns, have “good value” in our terminology.

The evidence for making investment decisions in alignment with value is robust. On average, based on data since 1980, the annual return of single country stock markets with the top third most attractive valuations outperform the bottom third by 5% per year.

We also use price trends as a catalyst for determining when to enter positions. Through long experience in the markets, we have repeatedly seen asset classes that appear to have strong value characteristics continue to get cheaper. Many of the emerging equity markets have had this characteristic in the last five years. We have learned that it is better in the long run to wait for cheap asset classes to start rising in price before committing to an overweight. Similarly, it’s better to wait for expensive asset classes to start falling in price before moving to an underweight.

The evidence to consider trend is also strong. For instance, in stock market history, the future return tends to be better if the past return is positive than if it is negative. On average, if the past 6 – 12 month stock market return is positive, the next quarter return is 1.5% to 2.0% higher than if the prior 6 – 12 month return is negative.

2018Q2 update

If you have any questions about our products or services, please contact us!

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