The equity allocation increased by 3 percentage points to 39% for the quarter ended June 30, 2024. The underperformance of U.S. value and ex-U.S. developed markets stocks has resulted in improved valuations. Our allocations to these categories, as well as to emerging markets equities, have increased by 1 percentage point each.

With this shift, our TVAA equity allocation is now 21 percentage points less than that of a market-capitalization-weighted benchmark portfolio with 60% equities and 40% bonds. “The time-varying portfolio is a reflection of an interest rate environment that remains positive for fixed income, while high valuations have left U.S. stocks’ equity risk premiums muted,” said Harshdeep Ahluwalia, Vanguard head of asset allocation for the Americas.

During the quarter, TVAA allocations to international bonds, U.S. intermediate credit bonds, and long-term U.S. Treasury bonds were reduced by 1 percentage point apiece because of the improvement in the outlook for U.S. value and non-U.S. equities.

Our TVAA is geared toward investors who are comfortable with model forecast risk, a type of active risk in which investors embrace our disciplined model for navigating changing market and economic environments.

IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time.

The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard's primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.