Country Equity Value Strategy Using CAPE Ratios

Summary

This strategy ranks a universe of country equity ETFs using Shiller’s cyclically adjusted price-to-earnings ratio (CAPE), which compares inflation-adjusted prices with a ten-year average of inflation-adjusted earnings. At each year-end, it selects the cheapest third of eligible countries, provided their CAPE is below 15, and allocates equally among them. Countries that fail the threshold are held in cash, and the portfolio is rebalanced annually.

The document provides implementation details for a daily-data backtest, including a country-level CAPE data feed and a fee model. It does not report performance results or establish that the strategy generated returns. The code’s stated universe comprises 32 countries, while its ETF mapping contains fewer entries; CAPE observations also need to be current enough to pass a 31-day freshness check. These details, along with historical data quality, country ETF coverage, and the risk of value underperformance, matter when reproducing or evaluating the method. The code also includes price sorting after CAPE filtering, so the selection logic should be checked against the stated intent to choose the lowest-CAPE countries.

Key ideas

• CAPE measures a country equity market’s inflation-adjusted price relative to a ten-year average of real earnings.
• At each year-end, the strategy filters for countries with CAPE below 15 and selects the cheapest third.
• Selected country ETFs receive equal portfolio weights, while ineligible capital remains in cash.
• The strategy is rebalanced annually and uses a freshness limit for imported CAPE data.
• The code’s sorting logic and its country universe description should be reconciled before relying on a backtest.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.