DoubleLine Shiller CAPE U.S. Equities ETF (CAPE)

The Cyclically Adjusted Price-to-Earnings ratio, or CAPE, adjusts a company’s earnings for the position in the business cycle, smoothing out the distortions that make ordinary P/E ratios misleading when profits are temporarily boomed or depressed. The DoubleLine Shiller CAPE U.S. Equities ETF (CAPE) builds a diversified portfolio tilted toward cheaper stocks as measured by this metric, betting that the market eventually rewards quality at reasonable valuations.

The CAPE metric and why it matters

Robert Shiller, the Nobel Prize-winning economist, developed the Cyclically Adjusted Price-to-Earnings ratio to address a fundamental problem with ordinary valuation metrics. In a boom year when corporate profits are inflated by economic excess, a stock that looks cheap by ordinary P/E is actually expensive relative to sustainable earnings. Conversely, in a recession when profits crater, a stock looks expensive by P/E but might be a bargain relative to normal conditions. CAPE smooths this noise by using the average inflation-adjusted earnings over the prior decade, creating a long-term valuation lens that ignores the cyclical noise.

The metric is not a precise market timer — it can stay elevated for years before the market corrects — but it has historically correlated with future returns. Markets priced at high CAPE multiples have tended to deliver modest returns over the following decade; markets at low CAPE multiples have tended to deliver strong ones. This simple observation is the foundation of CAPE’s portfolio construction.

How CAPE selects and weights stocks

The fund begins with the broad U.S. equity market and ranks stocks by their individual CAPE ratios. Stocks with lower CAPE multiples — that is, stocks where inflation-adjusted earnings are high relative to price — receive larger positions. Stocks with elevated CAPE ratios receive smaller positions or are excluded entirely. The result is a portfolio of large-cap and some mid-cap stocks tilted toward value, but still diversified across sectors and not concentrated in a handful of cheap stocks.

The fund rebalances on a systematic schedule, evaluating CAPE rankings and adjusting weights accordingly. Because the valuation metric is backward-looking and slow to change, the portfolio does not churn rapidly. This keeps trading costs and tax turnover reasonable, especially important for long-term holders who benefit from patience and low fees.

The risk and the reward

The fund’s performance depends entirely on a bet that CAPE-cheap stocks will outperform CAPE-expensive stocks over the relevant holding period. This is not guaranteed. In the 2010s, the most expensive companies — particularly large software and consumer technology firms — dominated returns, and CAPE’s value tilt cost it performance. A decade-long period of relative value weakness can erode confidence in the strategy, even if the underlying thesis remains sound.

The other risk is specific to cyclical valuation timing. A stock can be cheap by CAPE and grow cheaper still if the underlying business faces genuine structural decline. CAPE is not a substitute for fundamental business analysis; it is a mechanical ranking that assumes low valuation eventually attracts capital and drives returns.

Who CAPE is for

CAPE suits investors who believe in mean reversion and are willing to hold through periods of style underperformance, and those who want a simple, rules-based way to tilt toward value without paying an active manager to pick individual stocks. It also appeals to students of long-term returns and market history who find Shiller’s work convincing and want a vehicle that implements his framework directly.

It is less suitable for growth investors, those betting on a permanent shift in capital toward expensive, high-quality firms, or investors who are uncomfortable owning a portfolio that has lagged in recent years and may lag again before outperformance arrives.

Research and transparency

The fund publishes its holdings and methodology transparently, and the CAPE ratio itself is public — anyone can calculate it for any stock or for the market as a whole. The intellectual foundation is Shiller’s published research and historical market data. For an investor considering CAPE, the right question is not whether the method is clever (it is relatively simple) but whether you believe low-valuation stocks will outperform high-valuation stocks over your time horizon, and whether you can tolerate periods — possibly years — of underperformance while waiting for that thesis to play out.