Today’s Performance Dispersion

May 27, 2009

Today’s sell-off was broad based. Breaking out today’s performance by relative strength decile shows just about everything performed relatively close to the universe average….. except the highest and lowest deciles.

decile2 Todays Performance Dispersion

The top relative strength stocks did about twice as well as the equal weighted average of the universe, and the bottom ranked stocks did much worse than the average. The list of bottom decile stocks that dragged down performance is no surprise: GM (on the verge of bankruptcy) and a bunch of financials (SLG, MI, GNW, PL, CNB, SNV, DRE). Could we finally be seeing a turn in the RS spread? Only time will tell.

On a sector basis, Technology continued to outperform the universe averages. Energy stocks, which had underperformed the past couple of days, also performed well.

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Emotional Asset Allocation

May 27, 2009

Yesterday, I received a memo on money market fund yields. I had to ask for the memo because I noticed that this particular clearing firm had removed the money market fund yield statistics from their statements. So I was curious. It turned out that the yield on the highest yielding money market funds (1-day yield) was 0.0000365%. If you multiply it out, the memo showed that the 7-day SEC yield was 0.00%. Yes, you read that right! Z-E-R-O. This particular money market fund shall remain nameless, but I am sure that most of their brethren are in the same ballpark.

This is one of the consequences of emotional asset allocation. According to the Investment Company Institute, retail money market funds have current assets of $1.276 trillion dollars. (You can see their press release here.) Much of this, I have to believe, was recently scared into money market funds due to the difficult stock market over the past 18 months. I’m sure some of these investors are consciously holding cash because they have short-term obligations to meet, but the fact remains that something over a trillion dollars is earning bupkis, largely because investors panicked.

It seems to me that some sort of systematic investment process with a long-term time horizon is going to be a much better solution than sitting in cash with a zero return.

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