The chart below measures the percentage of high relative strength stocks that are trading above their 50-day moving average (universe of mid and large cap stocks.) As of 5/31/11.
The High RS Diffusion index has been fairly volatile for the last few months. Yesterday’s one day reading was 72%, and the 10-day moving average is 60%.
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Posted by JP Lee
The always-terrific Barron’s has a nice interview with Dennis Stattman, head of the Blackrock Global Allocation Fund, one of our value-oriented competitors in the global asset allocation arena. He’s done a terrific job for many years, and his value-oriented approach turns out to be a very good complement to our relative strength approach. (For full articles on this topic, see Global is the New Core and The “All-in-One Fund” With a Twist.) For me, the highlight of the interview was this exchange about the role of global go-anywhere funds:
Barron’s: There’s been a lot more money flowing into asset-allocation funds that can invest in many different styles, including the fund you run. What’s your take on this trend?
It isn’t surprising that the category is growing in popularity. It reflects the frankly dismal job that the most popular category, equity-only mutual funds, have done, as shown by the dismal results they have delivered to investors over long periods of time. They just haven’t provided a good risk-return trade-off. Furthermore, the idea that somebody can buy six different U.S. stock funds and somehow achieve useful diversification just isn’t an effective idea. It never was a good idea, and now it has been proved wrong. So having the ability to go anywhere is what, ideally, a fund manager should have. But there are very, very few individuals or teams who have the experience and who are equipped to do this.
I wholeheartedly concur with his remark on style-box diversification being completely inadequate, but I think the problem is not with equity-only mutual funds, but rather reflects the issue of poor portfolio construction. Too often portfolio construction has focused on assets (as in asset allocation) on not on diversification by strategy. Value and relative strength work well together because they are essentially strategic opposites: relative strength is trend following, and value is mean-reverting. It’s not too surprising that their excess returns are uncorrelated, but that makes them a wonderful blend for a client portfolio.
Lots of clients own Blackrock Global Allocation, but how many of them know how much their portfolio can potentially be improved with the addition of our Global Macro strategy?
To obtain a fact sheet and prospectus for the Arrow DWA Tactical Fund (DWTFX) or the Arrow DWA Balanced Fund (DWAFX), click here.
3 Comments | Markets, Relative Strength and Value, Tactical Asset Alloc, Thought Process | Permalink
Posted by Mike Moody
It’s no secret that savings rates have been declining. The low savings rate also appears to have an element of self-deception—or maybe it is just an outgrowth of the self-esteem movement. (Or was it just my kids that got a trophy every sports season for merely participating?) According to Financial Planning:
The survey found that 49% of respondents said they believe they’re doing a better job of saving money than their parents did even though the Bureau of Economic Analysis’ latest personal savings data found that Americans’ personal savings rate averaged a meager 3.48% of total income over the past decade — way, way down from the 9.63% recorded in 1981.
In short, they are saving 60% less than their parents, but many of them think they are doing great! With many fewer individuals covered by defined benefit plans and retiree health coverage, it’s probable that future retirees will need to save much more than their parents did.
An advisor can play a big role in getting clients to understand the importance of saving and investing—and it appears that there is a lot of work to do.
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Posted by Mike Moody
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