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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Elm Wealth maintained static asset allocation in Q3 2025, favoring non-US equity over expensive US markets. With US P/E ratios near 40x offering only 1.3% risk premium versus 3-6% for international markets, the firm continues defensive US positioning while emphasizing that high valuations signal low future returns rather than imminent corrections."
Elm Wealth's Q3 2025 letter describes an exceptionally quiet quarter for asset allocation with no material changes to US equity, non-US equity, or fixed-income weights. The firm maintains low US risk levels due to unattractive expected returns, with US markets offering only a 1.3% risk premium relative to safe assets. In contrast, non-US markets provide more compelling opportunities with 3-6% risk premia and low risk levels. Client concerns about US P/E ratios near 40x prompted discussion of the firm's preferred PCAPE metric, which suggests US long-term expected real returns of 3-3.5% - quite low compared to 2% real yields on 10-year TIPS. The firm emphasizes that high P/E ratios imply low future returns rather than mean reversion. Portfolio changes included removing municipal bond exposure in favor of aggregate investment-grade bonds for improved ETF efficiency. The letter also introduces their new lifetime investing tool ELISA and announces an upcoming educational event in NYC.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
A conviction score of 0.40 reflects Elm's systematic, highly diversified asset-allocation framework. Rather than high-conviction concentrated stock bets, the fund invests across broad index ETFs, adjusting weights incrementally based on quantitative risk premia.
Growth Outlook
The manager displays cautiousness regarding US equity valuations, noting that expected real returns of 3-3.5% are unattractive relative to a 2% real yield on TIPS. However, they are more constructive on non-US equities, which offer more attractive risk premia of 3-6%.
Risk Appetite
Elm Wealth maintains a balanced overall equity allocation close to its baseline (72.2% target vs. 75% baseline), but exhibits a defensive tilt within equities by significantly underweighting US equities (28.8% vs. 45.3% baseline) due to unattractive risk premia.
Capital Deployment
The score of 0.50 represents stable capital deployment, as the manager states that asset allocation weights did not move materially during the quarter, indicating a period of holding existing positions without major active buying or selling.
Forward Guidance
The manager reports that Q3 was exceptionally quiet with no material asset allocation changes. They are maintaining current weights and monitoring risk levels, suggesting a neutral action bias of 0.50.
Language Signal
The language is mostly objective and analytical, leaning slightly cautious (0.45) due to terms like 'unattractive' and 'low long-term expected real return' when discussing US equities, though offset by 'attractive' descriptions of non-US markets.
Perceived Risk
Perceived risk is scored at 0.50, reflecting moderate concern over elevated US valuations (Shiller CAPE near 40x) but without alarmism. The managers explicitly state they do not see evidence of imminent mean-reversion (sell-off), viewing high valuations as a drag on long-term returns rather than an active crash catalyst.
Opportunity Density
Opportunity density is scored at 0.50 because the manager sees a bifurcated market: scarce value in US equities (1.3% risk premium) but relatively attractive options in non-US equities (3-6% risk premium) and TIPS (2% real yield).
Time Horizon
Elm Wealth operates with a very high time horizon score of 0.90, emphasizing long-term asset allocation and stating that high P/E metrics simply imply low long-term expected real returns over multi-year horizons, discarding short-term mean-reversion expectations.
