01/31/2014
The Arrow DWA Balanced Fund (DWAFX)
At the end of January, the fund had approximately 46% in U.S. Equities, 26% in Fixed Income, 16% in International Equities, and 11% in Alternatives.
DWAFX fell 1.85% in January, after gaining 15.77% in 2013.
After a remarkable year for equities in 2013, stocks pulled back in January. Fixed Income prices moved higher, helping to buffer the overall returns of the fund for the month. Interest rates moved sharply higher in the spring and summer of 2013, during initial announcements of Fed tapering of its quantitative easing program, but rates had chopped sideways for the last couple months. January was not exactly a case of what performed best in 2013, performed worst in January. Rather, Healthcare, which was one of last year’s biggest winners continued to gain relative strength and actually generated positive returns for the month. Small and mid-caps also generally continued their favorable performance compared to large caps. The biggest losses for the month came from our international equity exposure, including Japan, Netherlands, and Germany.
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 January, the fund had approximately 90% in U.S. equities and 9% in International equities.
DWTFX fell 3.30% in January, after gaining 26.19% in 2013.
There were no changes in holdings in the fund in January. Healthcare and Small-Cap Growth held up relatively well, while Consumer Discretionary and European Equities were among our worst performers for the month. Many of the longer-term relative strength trends remain firmly in place, even will the pull back over the last couple of weeks: U.S. equities continue to have strong relative strength, Emerging Markets and Commodities continue to be particularly weak, and Fixed Income and Currencies are not strong enough to warrant exposure at this point.
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. Past performance is no guarantee of future returns. See www.arrowfunds.com for a prospectus.
