The Arrow DWA Balanced Fund (DWAFX)
At the end of May, the fund had approximately 39% in U.S. equities, 26% in Fixed Income, 24% in International equities, and 11% in Alternatives.
We generally has positive returns in each of the different sleeves (U.S. equities, Fixed Income, International equities, and Alternatives) of the fund in May—something not always seen in a diversified balanced fund like DWAFX. We had a number of trades in May: sold Large-Cap Growth, Small-Cap Growth, and Consumer Cyclicals and bought Mid-Cap Value, Small-Cap Value, and Basic Materials. We also slightly reduced our U.S. Equity exposure and increased our Int’l Equity Exposure. While there were relatively few trades in the fund in 2013, this year has brought a number of changes.
DWAFX gained 1.23% in May, and is up 1.57% YTD through 5/31/14.
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 May, the fund had approximately 70% in U.S. equities, 19% in International equities, and 10% in Commodities.
Our U.S. equity exposure was reduced from 90% to 70% in May and we added another position to European equities and a position to Commodities. U.S. equities continue to be the dominant asset class from a relative strength perspective, but we have seen better performance from other asset classes as well this year. Relative strength in general had a strong month in May after pulling back in March and part of April.
DWTFX gained 0.87% in May, and is up 1.07% YTD through 5/31/14.
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.