The Arrow DWA Balanced Fund (DWAFX)
At the end of April, the fund had approximately 45% in U.S. Equities, 25% in Fixed Income, 17% in International Equities, and 13% in Alternatives. The U.S. equity markets continue to power higher led by Healthcare, Financials, and Consumer Cyclicals—all sectors that we own in the fund. While broad economic growth remains tepid, corporate profits have been impressive and this is surely a large reason why equities have been so strong. Much of our best performance for the fund in April also came from our Alternatives sleeve which has exposure to real estate, which has been the best performing asset class so far this year, and our currency carry trade, which includes a short position in the Japanese Yen. In recent months, the Japanese have embraced aggressive monetary policy in an attempt to stimulate their economy and to raise inflation. Their currency has dropped sharply so far this year. Real estate continues to benefit from the low interest rate environment and the economic recovery. International equities also had a strong month in April and are among the best performers for the year. Our exposure to fixed income can range from 25-65 percent of the fund, but for now the exposure is at the lower end of its band.
DWAFX gained 1.56% in April and is up 8% through 4/30/13.
We believe that a real strength of this strategy is its balance between remaining diversified, while also adapting to market leadership. When an asset class is weak its exposure will tend to be towards the lower end of the exposure constraints, and when an asset class is strong its exposure in the fund will trend toward the upper end of its exposure constraints. Relative strength provides an effective means of determining the appropriate weights of the strategy.
The Arrow DWA Tactical Fund (DWTFX)
At the end of April, the fund had approximately 78% in U.S. Equities, 10% in International Equities, and 9% in Real Estate. Over the course of the month, we reduced our exposure to international equities—specifically to European equities and Pacific ex-Japan—and increased our exposure to U.S. equities. We also added a position to Japanese equities. Japanese equities have responded strongly to the aggressive monetary policy being employed in Japan in an attempt to stimulate their economy. This is noteworthy because Japanese equities have had poor relative strength for much of the past several decades. We are also capitalizing on the improvement in Japan by our position in international real estate as the largest position in that ETF is to Japanese real estate. Among our best performing positions for the year are our U.S. sector positions in Health Care, Consumer Discretionary, and Financials. Stable leadership in those sectors has been very helpful for the performance of the overall fund.
DWTFX was up 2.63% in April and has gained 9.79% through 4/30/13.
This strategy is a go-anywhere strategy with very few constraints in terms of exposure to different asset classes. The strategy can invest in domestic equities, international equities, inverse equities, currencies, commodities, real estate, and fixed income. Market history clearly shows that asset classes go through secular bull and bear markets and we believe this strategy is ideally designed to capitalize on those trends. Additionally, we believe that this strategy can provide important risk diversification for a client’s overall portfolio.
See www.arrowfunds.com for more information.