Using a rigorous consistent approach DAA aims to capture the medium-term opportunities created by market dislocation
Mercer’s DAA team adopts a holistic approach to assessing asset class performance, believing that no single valuation variable or model will produce optimal results. For equities, for example, Mercer considers a range of relevant factors:
- Valuation factors, including earnings based, yield based and balance sheet measures
- Momentum factors, including the evolution of the business cycle and earnings expectations
- Liquidity and Sentiment factors, including risk appetite measures
Rather than relying on a model-based approach, the DAA framework establishes asset class performance indicators. These are absolute valuation views, relative to Mercer’s long-term return expectations, and range from Extremely Undervalued to Extremely Overvalued. Mercer also provides relative valuation views for satellite asset classes such as Small Caps and Emerging Markets, relative to core asset classes.