We ask a simple question over and over again

  • Our investment process starts with a deceptively simple question: “What is the probability that equity returns will beat bond returns on a risk-adjusted basis?”
  • To answer it, we calculate something called the PRATER – the Probability of a Risk-Adjusted Total Excess Return.
  • We can ask exactly the same question about the returns of emerging and developed equity markets, or any two assets we want to choose between.
  • We need to be clear at the outset that we are only interested in total returns, not yield or capital appreciation or performance relative to an index.
  • There are literally dozens of ways in which we could calculate the PRATER, but nearly all of them require forecasts, but we don’t believe in forecasts (see investment philosophy).
  • We use the most recent price data, to construct a cumulative frequency distribution of total returns based on the last 52 weeks’ return and standard deviation.