The Arrow DWA Balanced Fund (DWAFX)
At the end of November, the fund had approximately 47% in U.S. Equities, 25% in Fixed Income, 17% in International Equities, and 11% in Alternatives.
U.S. equities pushed to another all-time high in November and remain the dominant asset class from a relative strength perspective. U.S. equities continue to be our biggest weighting in the fund. All three of our sector positions (Consumer Services, Health Care, and Financials) outperformed the broad market in November. We also continued to see strong performance in our style positions (Mid-Cap Value and Small-Cap Value). Developed International Markets continued their outperformance versus Emerging Markets in November and all five of our international positions are from developed markets.
Our fixed income holdings were essentially flat in November and this asset class remains near the lower end of its exposure constraint. Our exposure to Alternatives (MLPs and Currencies) was also relatively flat for the month. Other Alternatives like precious metals (which we do not currently own) had steep losses for the month and remain among the weakest asset classes.
Stable leadership has been a theme in 2013 and relative strength has capitalized.
DWAFX rose 1.48% in November, and is up 14.18% through 11/30/13.
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 November, the fund had approximately 90% in U.S. equities and 9% in International equities.
According to Morningstar, this fund is outperforming 95% of its peers YTD. One of the dominant themes in the market in 2013 has been small and mid-cap stocks outperforming large caps. Approximately half of the holdings of the fund are in either small or mid-caps as a result of their strong relative strength. We also had strong performance from our sector positions in November (Healthcare, Industrials, and Consumer Services), all of which outpaced the broad market for the month.
Our one position in international stocks is focused on Eurozone stocks. The position was up in November, but largely lagged U.S. equities.
Part of risk management is being able to capitalize in strong equity markets and this fund has certainly done that this year.
DWTFX was up 2.97% in November, and has gained 23.26% through 11/30/13.
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.
A list of all holdings for the trailing 12 months is available upon request.