In January, many firms seem compelled to offer a forecast for the coming year. Not us. (By now you should know what I think about predictions!) We just go with the flow and try to turn every year into a good year.
Since I recognize this is not very satisfying, here is my favorite prediction so far, courtesy of Laszlo Birinyi, by way of Investment News. I’m not saying it’s more accurate, just that I like it better!
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Posted by: Mike Moody
According to pieces in the Wall Street Journal and Fortune, most active managers had a difficult time last year beating their benchmarks.
Just one in five large-cap fund managers outperformed the Russell 1000 index last year, according to Bank of America Merrill Lynch. That is the worst performance on record, says quantitative strategist Savita Subramanian.
A slightly higher percentage must have outperformed the S&P 500, but the benchmarks weren’t that far apart. I’m a little surprised by that number in 2010, because price performance was notably stronger in mid-cap, small-cap, and growth. Now, during some years the year-end number can be misleading, if there was a big shift in trend or a whipsaw during the year, but that wasn’t the case in 2010.
When I looked at style box performance quarter-by-quarter, it was pretty consistent. I looked at the top half of style boxes, four each quarter, to see where the outperformance was concentrated. IJK outperformed all four quarters, IJH and IJR for three, and IJT and IJS for two. IJJ and IVW outperformed for one quarter each. (IVW was the sole appearance of a large-cap style the entire year.) Mid-cap represented eight of the top sectors, with small-caps at seven, and large caps with only one. When examined from a style-only perspective, growth was responsible for seven of the top performances, followed by blend with six, and only three for value. (Price returns are in rank order in the table below.)
| Symbol | %Change |
| IJK - iShares S&P 400 Growth | 29.61 |
| IJT - iShares S&P 600 Growth | 27.04 |
| IJH - iShares S&P 400 | 25.25 |
| IJR - iShares S&P 600 | 25.13 |
| IJS - iShares S&P 600 Value | 23.14 |
| IJJ - iShares S&P 400 Value | 20.50 |
| IVW - iShares S&P 500 Growth | 13.21 |
| IVV - iShares S&P 500 | 12.91 |
| IVE - iShares S&P 500 Value | 12.41 |
Source: Dorsey, Wright
This kind of year is a dream for a trend follower that uses relative strength! Since the relative strength was in mid-cap and small-cap names, that’s where a portfolio would gravitate. Even better, the trends were more or less in place the entire year. The only way to perform worse than the market in 2010 would be to have a heavy concentration in large -cap value. Which, apparently, is what a lot of managers did.
Indexing fans will no doubt see this as another victory. I see it primarily as a complete lack of imagination on the part of the mutual fund industry. If you confine a manager to only one style box, this is what can happen. 2010 is a pretty good argument that you need to let the portfolio go where the returns are.
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Posted by: Mike Moody
(Click Image To Access Report)
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Posted by: Andy Hyer
At the recent Morningstar Investment Conference, Bill Gross of Pimco laid out his “Seven Commandments” for investing in the current environment. At the top of the list was this: the policy portfolio (the standard 60% stocks/40% bonds) is dead.
Several of his other commandments stressed the importance of international markets and the dollar. All of these things are a little unfamiliar to domestic investors. We’ve gotten used to having the largest, more liquid, and best equity market in the world. We didn’t need to look anywhere else.
It turns out that this has been a narrow view. Investment management firms from small countries like the Netherlands or Scotland have been evaluating opportunities overseas and investing in them for centuries. Much of the world, in fact, has been explored and settled largely in the search for outside investment opportunities!
What is going to replace the now moribund policy portfolio? I suppose the jury is still out, but I suspect it will be a more global multi-asset portfolio that could bear a striking resemblance to our Systematic RS Global Macro portfolio or to the Arrow DWA Balanced Fund (DWAFX).
Click here to visit ArrowFunds.com for a prospectus & disclosures. Click here for disclosures from Dorsey Wright Money Management.
—-this was originally published 6/4/2009. Over the last year or so, the move away from the traditional 60/40 portfolio has done nothing but accelerate. Investors need to think about casting a wider net.
1 Comment | From the Archives | Permalink
Posted by: Mike Moody
Even though the financial markets have offered strong gains in the past two years, investors remain highly uncertain about the financial markets. Investors still have 2008 on their minds and are concerned that we may not yet be done with this financial crisis. This leaves them in a position where they need more help than ever to navigate the global financial markets.
One of the key advantages of our Global Macro strategy is its ability to shift among different asset classes (U.S. equities, international equities, inverse equities, currencies, commodities, real estate, and fixed income) depending on where the best relative strength is found. At times, this strategy can be allocated very conservatively; at other times, it can be allocated to asset classes that are enjoying strong gains.
More than ever, investors are open to a fresh approach to asset allocation that allows them to seek out the best investment opportunities wherever they may exist in the world.
Click here to watch a 14-minute video presentation on our Global Macro strategy that will prepare you to present this strategy to your clients.
To receive the brochure for our Global Macro strategy, click here. For information about the Arrow DWA Tactical Fund (DWTFX), click here.
Click here and here for disclosures. Past performance is no guarantee of future returns.
1 Comment | Tactical Asset Alloc | Permalink
Posted by: Andy Hyer
How different investments have done over the past 12 months, 6 months, and month.
1PowerShares DB Gold, 2iShares MSCI Emerging Markets ETF, 3iShares DJ U.S. Real Estate Index, 4iShares S&P Europe 350 Index, 5Green Haven Continuous Commodity Index, 6iBoxx High Yield Corporate Bond Fund, 7JP Morgan Emerging Markets Bond Fund, 8PowerShares DB US Dollar Index, 9iBoxx Investment Grade Corporate Bond Fund, 10PowerShares DB Oil, 11iShares Barclays 20+ Year Treasury Bond
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Posted by: Andy Hyer
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