Investors Flee Equities, Pile Into Cash

September 15, 2009

This tidbit is from a more extensive article about wealth destruction in the Wall Street Journal.

Measured in U.S. dollars, global wealth shrank by 14.8% and changed how wealthy individuals invest. With stock market losses accounting for about 13.5% of the wealth decline, investors began to shift more assets out of equities. In North America, for instance, the share of wealth held in equities fell from 50% to 28% in 2008, but it remains the region with the highest proportion of wealth held in equities.

Investors are abandoning complex products in favor of simple, low-margin investments focused on preserving wealth rather than growing it, the study found. The proportion of assets held in cash and money markets grew by 26% in 2008. Wealth has been flowing out of bankable assets into tangible investments such as real estate or gold.

It’s always interesting to see how investors respond to market movements. Money is flowing one direction now, but that flow could well change or reverse in the future. The constant adjustments, to me, just point out how important it is to have a systematic, tactical way to respond to market shifts.

Leave a Comment » | Investor Behavior, Markets, Tactical Asset Alloc | Permalink
Posted by Mike Moody

Bubble-nomics

September 15, 2009

Alan Greenspan used to believe that bubbles did not exist. One group of economists thinks bubbles can’t be stopped, while others think they can be identified and should be deflated.

In reality, bubbles occur all the time and for all sorts of reasons, some rational and some not. Often bubbles have a fundamental basis originally, followed on by mob psychology at the end. Every bubble is a little different and a lot the same, as this insightful article from the International Herald Tribune points out.

The history of markets is one bubble after another, some large and some small. This is the main reason that we are not concerned about trends disappearing from the markets. Relative strength gives us a way to measure the strength of the trends, in order to pick out the trends we want to participate in—the strongest trends.

Leave a Comment » | Investor Behavior, Markets, Thought Process | Permalink
Posted by Mike Moody

Is the Endowment Model Dead?

September 15, 2009

Mike Hennessy, co-founder and managing director of investments at $9 billion Morgan Creek Capital Management, doesn’t think so.

The “endowment model” practiced by most of the big university endowments and many big foundations (but also by some astute smaller endowments and foundations) has overwhelmingly outperformed virtually all other models over any reasonable time period, and has done so for a very long time now…The model employs the broadest asset allocation possible, literally encompassing all asset classes globally and virtually all strategies globally.

Hennessy’s comments also touch on the role that ETFs play in making this type of model available to all investors, not just the endowments.

One relatively new twist on the model is a result of the industry having evolved to make available a staggering array of efficient, inexpensive and highly liquid investment vehicles such as ETFs (Exchange Traded Funds) and other liquid investments which make it easier, more effective and less punitive than ever to infuse liquidity within the model.

The expansion of the ETF universe has made possible our Arrow DWA Balanced Fund (DWAFX) and Arrow DWA Tactical Fund (DWTFX). As a reminder, last month the Arrow DWA Tactical Fund (DWTFX) completed its conversion to a global macro style so that the strategy is now aligned with our Systematic RS Global Macro strategy which is available as a separately managed account.

Click here to visit ArrowFunds.com for a prospectus & disclosures. Click here for disclosures from Dorsey Wright Money Management.

Leave a Comment » | Tactical Asset Alloc | Permalink
Posted by Andy Hyer

Bond Timers Are Bullish

September 15, 2009

Unfortunately, bond timers have an excellent record of being wrong. According to Mark Hulbert, bond timers are at their most bullish since 2001. This is perhaps not a good sign for bond prices and inflation. On the other hand, given that bond funds have recently outsold stock funds by a 5-to-1 margin among retail investors, it wouldn’t be a shock if the retail investor was caught holding the bag once again.

Leave a Comment » | Investor Behavior, Markets | Permalink
Posted by Mike Moody