Eye on the Market I March 8.2012 J.P.Morgan Topics: How our portfolio allocations compare to others; A Very Long Year in Provence (France); California vs Greece In the midst of the largest monetary and fiscal policy experiment of the last couple of hundred years, we eventually have to put down the charts, valuation models and theories, and arrive at portfolio allocations for money we manage. As in the movie Rashomonl, reasonable people can disagree on what is happening, and what it means. Now that the ECB has opened the spigot, there's no shortage of optimism: as one example, the head of BlackRock suggests investors be 100% in stocks. And in his latest note, Jeremy Grantham (one of the world's best value investors) joined in, calling for normal global equity allocations, asserting that equities should perform well as an inflation hedge that investors will someday need2. Many independent research shops are also quite bullish}, as optimism is not confined to the "constant as the northern star" broker-dealer community. Where do we stack up on risk-taking? It depends how you ask. Barron's detailed the asset allocation of 40 large wealth management firms, which is a good way to compare their Balanced portfolio allocations° . The first chart shows allocations to public and private equity. We are in the red bar, at the lower end of the range. However, using a broader definition of risk that includes hedge funds, real estate and high yield bonds, we rank at the higher end. One could always risk-adjust the various asset classes (since high yield usually does not entail the same risk as stocks) to normalize the results on the right. Our risk exposure would probably end up in the middle, but with a more diversified set of market factors driving it (see p.3). Summary of select indicators in Barron's Wealth Management Asset Allocation Survey Equities (public plus private) Numberof firms 5 3 2 111 111111111 1 quIquIqulgiqqiggiqq.lquIquIqulq ci ; 2 2 t")