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Growth, Yield, Fear and Inflation are the building blocks of our framework. In order to understand why these variables matter, it is helpful to understand what each of them tell us about the market. Framed another way, what question does each factor seek to answer?
Growth Yield Fear Inflation

How is the global economy performing?

Will I be paid more for owning Stock risk or Bond yield?

Are there signs of fear and uncertainty in the markets?

Are changes in purchasing power posing a threat to my portfolio?




When Growth is positive, corporate profitability and Equity performance is stimulated and there is greater demand for commodities.

When Equities are generating more value than Bonds, their performance will eventually reflect it.

When uncertainty is prevalent, it makes market participants fearful; safe-haven assets outperform risky ones.

When purchasing power decreases (positive inflation), assets with intrinsic value outperform.


Asset Class Impact

Equities ↑
Bonds -
Commodities ↑

Equities ↑
Bonds ↓
Commodities -

Equities ↓
Bonds ↑
Commodities ↓

Equities ↓
Bonds -
Commodities ↑


Role In a Portfolio

 
 
 
 

Engine

Core Tool

Risk Hedge

Risk Hedge


The graphic below illustrates the logic we use to objectively and consistently capture Growth, Yield, Fear and Inflation.  




Quantification

 

Market Psychology

 

Timeframe Diversification

Macroeconomic data releases

 

Market psychology not in play

 

Cross-timeframe measurements are pivotal

Interest Rates, Prices, Fundamentals

 

Market psychology not in play

 

Observed on a daily basis

Market derived data (i.e. Volatility, Credit Spreads)

 

Highly impacted by market psychology

 

Mostly a short-term affect

Macroeconomic data releases

 

Inflation Sentiment will not affect the economy, but expectations of Inflation affect behavior

 

Timeframe diversification important


Least Most
Importance


With GYfi, we quantitatively measure the four most important Econometric factors that affect not only
Equities, but Fixed Income and Commodities, as well, in order to generate our exposure.
Growth How is the global
economy performing?
Fear Are there signs of fear and
uncertainty in the markets?
Yield Will i be paid more for owning
stock risk or bond yield?
Inflation Are changes in purchasing power
posing a threat to my porfolio?

GYfi was adapted from GAA’s Econometric portfolio; we eliminated some of the extraneous detail and distilled the models down to their critical components, which are Growth, Yield, Fear and Inflation – GYfi. At its core, this framework has two defining characteristics:

  • Superior returns and diversification: These models have been a major contributing factor to the success of the GAA Fund for 5+ years.
  • Attractive to institutions: These models have a frequency that aligns more closely to that of an institution, and they are guided by straightforward economic principles that an institution can understand and feel comfortable with.
We do not try to predict the future with GYfi, but we can measure the current reality and make informed estimates on the likelihood that this reality will continue.