07 December 2015 (22 pages/ 814 kb) The Flow Whisperer – TAARSS says prefer US Equities into year-end
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Tactical Asset Allocation Relative Strength Signal (TAARSS) Monthly Update
Top recommendations for December: US Broad, DM Global Regional, and US Technology equities.
ETF flow trends showed strong support from investors to US and Global DM regional equities, but not to DM countries
During November, equity ETFs experienced the most significant flow trends. US and DM equities both showed positive support, while EM flows signaled weakness. However, the divergent trends within DM equities caught our attention the most. ETFs tracking Global DM Regional exposures (think EAFE or World ex US) attracted very strong and consistent inflows; while, on the other hand, ETFs tracking specific DM countries experienced consistent outflows suggesting that investors are concerned with specific country risk outside the US (Figure 1).
Tactical positioning for December 2015 based on TAARSS
- Prefer equities over fixed income and commodities into year end.
- For Global Equities prefer positions in US, and DM equities; avoid EM.
- For US equity exposure prefer broad market cap exposure with a tilt to domestic cyclical sectors such as Tech.
- For Intl DM equities prefer global regional allocations (e.g. EAFE-like) instead of other sub regions or country exposures. Stay neutral to Europe and Japan, and away from Asia Pac ex Japan. Continue to implement Europe via regional exposures rather than country allocations.
- For EM equities, we see pressure from flows across the board, and downside risk from a potential Fed hike. We recommend staying away.
- In Fixed Income, US Treasuries continue to suggest weakness. Corporate credit (IG, HY, Sr Loans) also seemed weak. There may be some opportunities in EM Debt, however.
The Synthetic Equity & Index Strategy Team
Deutsche Bank – Equity Research