Bartholdi says that the expected 5-year annualised return for US equities currently is between 0 and -1% based on cyclically adjusted price earnings ratios.
"So there is no potential anymore in US equities anymore," he asserts.
However, cyclically adjusted P/E isn't a reliable metric on the short term. Over the (very) long term, US equity CAPE will come down, "but I can’t really tell whether that wil happen in one year, in five years or in 10 years. Mean reversion can take a long time," says Bartholdi.
"Only if your investment horizon is 10-20 years, using CAPE really has an added value."
Bartholdi therefore doesn't use CAPE as a guide to his tactical asset allocation. "If you had implemented a trading rule based on CAPE, you would have underperformed a buy-and-hold strategy over the past 20 years," he says.