6/30/2014
The Arrow DWA Balanced Fund (DWAFX)
At the end of June, the fund had approximately 40% in U.S. equities, 25% in Fixed Income, 23% in International equities, and 11% in Alternatives.
We had one change in June—sold a currency position and replaced it with real estate. Our Alternatives sleeve now has exposure to MLPs and real estate, both areas with strong relative strength and attractive yields. Our U.S. equity exposure performed well in June (this continues to be our biggest overweight), but our exposure to European equities did not fare as well for the month. After struggling for a couple months, U.S. small caps also had a strong June and outperformed mid and large caps. Although we have seen some shifts in leadership this year the major trends remain intact. We saw some underperformance in our strategies at the beginning of the second quarter, but after we made shifts in allocations, the portfolios recovered nicely. While there are always unforeseen events that can derail the market, we are quite optimistic for the second half of the year.
DWAFX gained 1.21% in June, and is up 2.81% YTD through 6/30/14.
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 June, the fund had approximately 70% in U.S. equities, 19% in International equities, and 10% in Commodities.
We made one change to the fund in June—replaced a small cap value position with large cap value. U.S. equity markets continued to climb in June. Equities had some volatility early on in the second quarter (especially in the high relative strength areas we own), but volatility tapered off toward the end of the quarter. Although we have seen some shifts in leadership this year the major trends remain intact. This year has been remarkable in the sense that nearly all asset classes have posted strong returns. Generally, there tends to be greater dispersion in asset class returns and it is quite possible that we will see that in the remainder of the year. Bond prices have risen in the first half of the year, but rates are showing some signs of moving higher so this is one area where there may be some weakness ahead.
DWTFX gained 1.44% in June, and is up 2.52% YTD through 6/30/14.
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. These relative strength strategies are NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. See www.arrowfunds.com for a prospectus.
