Risk Appetite in Major Assets Increases
01/03/2011 0 comments
Going into 2011, investors have shown a consistently increasing risk appetite among major assets. The following trend table (for more details, refer here) illustrates this:
| Assets Class | Symbols | 12/31 Trend Score | 12/24 Trend Score | Direction |
|---|---|---|---|---|
| Frontier Market Stks | FRN | 14.92% | 12.45% | ^ |
| International REITs | RWX | 13.06% | 12.32% | ^ |
| Commodities | DBC | 12.4% | 12.35% | ^ |
| Emerging Market Stks | VWO | 11.92% | 10.36% | ^ |
| US Stocks | VTI | 11.81% | 11.51% | ^ |
| Gold | GLD | 11.49% | 8.58% | ^ |
| US Equity REITs | VNQ | 11.39% | 9.95% | ^ |
| International Developed Stks | EFA | 7.24% | 6.41% | ^ |
| US High Yield Bonds | JNK | 4.6% | 4.85% | v |
| International Treasury Bonds | BWX | 2.93% | 0.99% | ^ |
| Emerging Mkt Bonds | PCY | 1.6% | 1.81% | v |
| US Credit Bonds | CFT | 1.14% | 1.11% | ^ |
| Intermediate Treasuries | IEF | 0.19% | -0.21% | ^ |
| Treasury Bills | SHV | 0.05% | 0.01% | ^ |
| Total US Bonds | BND | -0.07% | 0.18% | v |
| Mortgage Back Bonds | MBB | -0.66% | -1.29% | ^ |
| Municipal Bonds | MUB | -2.8% | -2.78% | v |
We make the following observations:
- The once considered stable or less risky assets such as municipal bonds and even total US Bonds are showing negative trends while the most risky assets such as Frontier Market (FRN) and Emerging Market Stocks (EEM), Commodities (DBC) and High Yield (Junk) Bonds (JNK) are showing strong up trends. This leaves out Cash as the only alternative in the once considered safe assets (at least at the moment).
- Commodities have made strong upward movement. Note: MyPlanIQ has switched our commodity tracking index from GSCI Commodity Index (GSG) to DB Commodity Index Tracking (DBC). In our previous article, we discussed the two major themes that are in commodities investing: QE2 impacts: U.S. dollar devaluation, especially against commodity export countries' currencies (and possible inflation) and positive economic recovery in the U.S..
- Related to the two major themes and 'least bad' U.S. economy, investors favor more and more U.S. stocks (consider European debt problems, inflation perspective in emerging markets).
- Both international REITs and U.S. REITs have shown strong fundamentaland price performance. See our previous article and a comment in that article.
In conclusion, 2010 has been an unusual year in many aspects. Going to the new year, strong risk chasing trends are increasingly evident. Among many long term fundamentals supporting a subdued market (stocks are not cheap, see Shiller metric and his latest 2020 S&P 500 prediction; global trade imbalance isn't resolved; the U.S. competitiveness has not increased etc.), Investors should keep a cool head and manage their portfolios accordingly. For now, we will stay on course and take actions as evidences are unfolded.
labels:investment,
Symbols:EEM,VNQ,FRN,VWO,IYR,ICF,GLD,RWX,VTI,SPY,IWM,PCY,EMB,JNK,HYG,PHB,EFA,VEU,IEF,TLT,GSG,DBC,DBA,CFT,BWX,MBB,BND,MUB,SHV,AGG,
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