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Our smart money indicator is based on comprehensive analysis of the top asset allocation Gurus' recent asset exposure. Currently, it tracks the aggregate asset exposure to U.S. equities and bonds.

We track two separate indicators:

  1. Top 3 Moderate Allocation Funds (Smart Money)

  2. 481 Moderate Asset Allocation Mutual Funds (Pro Money)

This is calculated weekly and covers the last one year. For the week ending 12/10/2010, our proprietary model reported the equity exposure of the Top 3 Funds was 78% and 67% for the 481 Moderate Asset Allocation Mutual Funds.

Trends for the Top 3 Moderate Allocation Funds (Smart Money)

click to enlarge charts

481 Moderate Asset Allocation Mutual Funds (Pro Money)

Two weeks ago, we saw that the desire for capital preservation prompted funds to tweak asset allocation to fixed income. In contrast, last week, funds were pulling out of bonds and in favor of stocks. With the stock market rallying to pre-Lehman levels, we are starting to see more fund flows that are driven by returns chasing. It remains unclear whether this is the beginning of a secular trend towards a more bullish outlook on the stock market and the 30-year-old bull market in bonds coming to an end.

Bond investor Bill Gross also signaled recently that the end of the bull bond market may be at hand and PIMCO is “expanding its guidelines so it will be able to invest up to 10 percent of its total asserts in preferred stock, convertible securities and other equity-linked securities.”

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.