The Arrow DWA Balanced Fund (DWAFX)
At the end of February, the fund had approximately 47% in U.S. Equities, 25% in Fixed Income, 17% in International Equities, and 10% in Alternatives.
DWAFX gained 3.49% in February and is up 1.57% YTD through 2/28/14.
As trend followers, it is no surprise that we tend to benefit when trends continue. While not all of the trends in place in 2013 have continued in 2014, many of them have. For example, Healthcare was one of the best performing sectors last year and is again leading the way in 2014. Small and Mid-Cap U.S. stocks outperformed Large Caps last year and are again leading the way in this year. European equities have also generally performed well with Belgium and Switzerland among our best performing holdings so far this year. Emerging market equities have also continued their weakness from 2013 into this year and are not currently represented in the fund. However, there have been signs of some potential changes in asset class performance as well. Commodities had a dreadful 2013, but have shown some real signs of strength in 2014. While this asset class is not currently represented in the fund, many commodities are starting to rise in our relative strength ranks. Fixed income also had a poor 2013, but has actually performed reasonably well so far this year.
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 February, the fund had approximately 90% in U.S. equities and 9% in International equities.
DWTFX gained 5.22% in February and is up 1.75% YTD through 2/28/14.
Turnover in this fund over the past year has been well below its historical average—another indication that trend following is performing well. Through 3/4/14, DWTFX is outperforming 78 percent of its peers in the Morningstar Tactical Asset Allocation category and is outperforming 96 percent of its peers over the past 12 months. Among our best performing holdings so far in 2014 are Healthcare, Small-Cap Growth, and Small-Cap Value. 50% of our current holdings are either Small or Mid Cap U.S. stocks, reflecting their continued strength compared to Large Caps.
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.