CAPE as an ETF country/region allocator?

Is anybody here using CAPE (or another such valuation measure) as a weight to help adjust their portfolio?

For example, instead of monthly buying 60% ETF A and 40% ETF B, using CAPE (or CAPE NIPA, etc) to adjust those percentages.

Also, do you know a place shows these ratios (CAPE, etc) for ETFs?

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Yes I overweight certain country ETFs based on their P/E fwd

MSCI publishes monthly updates for every country index which includes Div. yield, P/E, P/E fwd and P/BV.

Just google
MSCI “country” pdf

another useful document, updated monthly, is available here

Quite easy to see which indices trade below/above average.
I’ve been quite succesful following this strategy.


I also use CAPE as a measure to adjust my allocation yearly, as I am convinced that in the long term lower CAPE countries will outperform. I basically use regional ETFs: US, EU, J, EM,…

I found two sources for country CAPE:

Research Affiliates:
Star Capital:

Then I calculate the ETF’s CAPE by looking at its country allocation and by calculating the weighted average.

What do you do?

Why? P/E ratios are very sensitive to business and growth characteristics of companies/industries. It is not a one-size-fits-all measure to compare companies, much less countries. High growth, high quality companies naturally command a higher valuation multiple. US stock market is highly diversified and you have a big healthy mix of industries there (though tilted towards growth with tech companies), but I cannot say the same about most other countries’ local stock markets. Shopping for cheap countries on P/E you’re more likely loading up on junkier companies with poorer financial and growth characteristics. Stuff is generally cheap for a reason.

For example Russia is among cheapest countries according to your second link, well, it’s mostly oil and gas you know. And then I suppose P/E is calculated in local currency, so you need to take into account local inflation/interest rates and currency make-up of companies’ earnings to judge whether a P/E of 7 is cheap or not.

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Yes this is somewhat true, but country indices are even more sensitive to geopolitics, especially in the emerging and frontier markets. Elections, protests, conflicts, Trumps tweets etc. can move the whole index significantly. My bet is simple - all markets are cyclical and eventually return to the mean. I have the time to wait.

In that case you need to find historical P/E for each market and compare current P/E to its historical mean, invest based on delta from the historical mean. Comparing PE (or CAPE) across countries and investing based on current P/E doesn’t make much sense to me as I explained above - different countries have different mixes of industries, business fundamentals, growth characteristics, interest rates etc.

Exactly. The link to Yardeni Research shows this clearly. I never said that I expect Russia to reach average P/E of the US.

Yeah, this yardeni paper is quite interesting. Thx.

Where do you find the historical P/E average?