4/30/2014
The Arrow DWA Balanced Fund (DWAFX)
At the end of April, the fund had approximately 45% in U.S. Equities, 25% in Fixed Income, 18% in International Equities, and 12% in Alternatives.
After a number of allocation changes in March, the fund had no changes in April. One of the asset classes with the most changes in 2014 has been alternatives—commodities and real estate have been particularly strong after being quite weak in 2013. Our position in MLP’s was our best performing holding in April. We also generally had good performance from our European equity positions. Interest rates fell in April, helping bonds also produce some positive gains. The weakness in April came from our U.S. equity exposure—particularly our small cap exposure. While 2013 tended to favor more concentrated asset allocation strategies, 2014 has been a year with more cross-currents and diversified asset allocation strategies, like this one, have been able to dampen much of the volatility.
DWAFX lost 0.20% in April, but is up 0.34% YTD through 4/30/14.
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 90% in U.S. equities and 9% in International equities.
One of the dominant themes in 2013 was the outperformance of U.S. small cap stocks. DWTFX had a lot of exposure to small caps last year and this was part of the reason that the fund performed well in 2013. That trend continued through February of this year, but in March and April we have seen sharp underperformance of small caps. While our buy and sell criteria for the fund are not based on short-term relative strength signals, small caps have dropped in our ranks and if this trend continues it is likely that we will see some changes to the fund in the coming weeks. Our European equity exposure was a bright spot for the fund in April as it added to its gains for the year. Asset classes like commodities and real estate continue to see improvement and, if it continues, may be areas where we add exposure in the coming weeks.
DWTFX lost 0.96% in April, but is up 0.19% YTD through 4/30/14.
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.
