10/31/2013
The Arrow DWA Balanced Fund (DWAFX)
At the end of October, the fund had approximately 47% in U.S. Equities, 25% in Fixed Income, 17% in International Equities, and 11% in Alternatives.
We had strong gains from our equity positions in October. For the month of October, Germany was up 5.54%, our Consumer Cyclical position was up 5.04%, Netherlands was up 4.95%, and our Mid-Cap Value position was up 4.65%. Our fixed income and currency positions were fairly flat for the month.
In U.S. equities, Small and Mid-Caps continue to have superior relative strength versus Large-Caps. Also, the composition of our international equity holdings has changed significantly over the last year. For most of 2012, the majority of our international holdings were from Emerging Markets. However, we started to see some important relative strength changes between Developed International Markets and Emerging Markets towards the middle of 2012. Currently, all five of our international holdings are from developed markets.
In the Alternative sleeve, we have exposure to MLPs and currencies. Commodities remain weak and are not represented in the fund.
DWAFX rose 2.75% in October, and is up 12.52% through 10/31/13.
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 October, the fund had approximately 90% in U.S. equities and 9% in International equities.
Some years it is helpful to remain widely diversified and other years it is better to be more concentrated. This is a year where our concentration in U.S. equities has really helped the performance of the fund as U.S. equities have generated some impressive returns. We did have a number of trades in October. We removed a Large Cap Value position, a Financial sector position, Japan, and a dividend-focused ETF. We added two Small-Cap ETFs, a European equity ETF, and an Industrials sector position. As is the nature of relative strength, if positions aren’t keeping up with other options in a rising market they can be sold even if they are rising (albeit more slowly than other positions in the universe).
DWTFX was up 3.60% in October, and has gained 19.71% through 10/31/13.
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.
A list of all holdings for the trailing 12 months is available upon request. See www.arrowfunds.com for more information.
