%0 Journal Article %A Rolando F. Peláez %T Tactical Asset Allocation with the Relative Total Return CAPE %D 2021 %R 10.3905/jpm.2021.1.206 %J The Journal of Portfolio Management %P jpm.2021.1.206 %X The extant literature documents an inverse long-term relationship between the cyclically adjusted price/earnings ratio (CAPE) and 10-year S&P 500 forward returns. This article shows that a different price/earnings ratio—the relative total return CAPE (RTRC)—has short-term signaling value. During 1901Q1–2019Q4, tactically shifting from the S&P 500 to 10-year Treasury notes yields a 79% increase in terminal wealth relative to buy-and-hold. Several RTRC filters yield positive and statistically significant alphas and superior Sharpe and Treynor measures. From a time-series perspective, the RTRC is indistinguishable from a level stationary series, whereas the CAPE appears to have a unit root.TOPICS: Security analysis and valuation, fundamental equity analysis, portfolio construction, performance measurementKey Findings▪ The article demonstrates the feasibility of tactically switching from the S&P 500 index to 10-year Treasury notes using the RTRC.▪ The historical simulation yields a 79% increase in terminal wealth relative to buy-and-hold during 1901Q1–2019Q4.▪ Several filters yield positive and statistically significant alphas and superior Sharpe and Treynor measures. %U https://jpm.pm-research.com/content/iijpormgmt/early/2021/01/27/jpm.2021.1.206.full.pdf