Systematic Relative Strength

International equities continue to rank just behind U.S. equities in Dorsey Wright’s Dynamic Asset Level Investing (DALI) tool, reflecting this asset class’s favorable relative strength. DALI, one of the most widely used tools on Dorsey Wright’s research database, provides a clear way for investors to identify leadership from an asset class perspective. While most investors are likely to have some portion of their overall asset allocation always exposed to International equities, those advisors who look to provide a tactical overlay may seek to overweight those asset classes with the best longer-term relative strength and to underweight those with the weakest relative strength.

Source: Dorsey Wright. This example is presented for illustrative purposes only and does not represent a past recommendation.

One way that advisors may consider gaining exposure to International equities is through our Systematic RS International portfolio (available as a separately managed account). We have been managing this strategy since March 31, 2006 and it is an area where we have been able to generate some meaningful outperformance over time.

Source: Dorsey Wright, March 31, 2006 - April 30, 2014. The performance above is based on total returns, inclusive of dividends and transaction costs. Investors cannot invest directly in an index. Indexes have no fees.

As shown above, this strategy has outperformed its benchmark by 4.19% annually on a net basis since its inception, over eight years ago. A description of the strategy is found below:

The Dorsey Wright Systematic RS International strategy seeks to provide long-term capital appreciation through exposure to international equities, primarily using American Depository Receipts (ADRs).

The strategy holds approximately 30-40 equities that demonstrate, in our opinion, favorable relative strength characteristics. The strategy is constructed pursuant to Dorsey Wright’s proprietary macroeconomic sector ranking and individual stock rotation methodology.

This strategy is uniquely positioned from an investment opportunity perspective because it is not limited by style (value or growth), investment capitalization (small, mid or large), or even classification of international market (emerging or developed). Rather, the Systematic Relative Strength International strategy is allowed the flexibility to seek out strong trends wherever they may be found within our universe of International equities.

The allocation of this portfolio is currently tilted towards developed international markets, as shown below:

Source: Dorsey Wright

Relative strength works all over the world! We certainly aren’t experts in analyzing the financials of foreign companies, but price is universal. With a relative strength strategy, you can succeed in many different markets and asset classes without specialized knowledge of the fundamentals of each country. Click here to see where this separately managed account is currently available. E-mail [email protected] or call 626-535-0630 to receive the brochure for this portfolio.

The performance represented in this brochure is based on monthly performance of the Systematic Relative Strength International Model. Net performance shown is total return net of management fees for all Dorsey, Wright & Associates managed accounts, managed for each complete quarter for each objective, regardless of levels of fixed income and cash in each account. The advisory fees are described in Part II of the adviser’s Form ADV. The starting values on 3/31/2006 are assigned an arbitrary value of 100 and statement portfolios are revalued on a trade date basis on the last day of each quarter. All returns since inception of actual Accounts are compared against the MSCI EAFE Total Return Index. The MSCI EAFE Total Return Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the United States and Canada and is maintained by MSCI Barra. A list of all holdings over the past 12 months is available upon request. The performance information is based on data supplied by the Manager or from statistical services, reports, or other sources which the Manager believes are reliable.

There are risks inherent in international investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities.

Past performance does not guarantee future results. In all securities trading, there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives when working with Dorsey, Wright & Associates.

This entry was posted on Thursday, May 22nd, 2014 at 12:21 pm and is filed under Markets, Momentum, Tactical Asset Alloc. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.