ETF Strategy: Risk Appetite in Major Assets Increases

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 |  Includes: BND, BWX, CRED, DBC, EEM, EFA, FRN, GLD, GSG, IEF, JNK, MBB, MUB, PCY, RWX, SHV, VNQ, VTI, VWO
by: MyPlanIQ

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% ^
U.S. Equity REITs VNQ 11.39% 9.95% ^
International Developed Stks EFA 7.24% 6.41% ^
U.S. 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
U.S. Credit Bonds CFT 1.14% 1.11% ^
Intermediate Treasuries IEF 0.19% -0.21% ^
Treasury Bills SHV 0.05% 0.01% ^
Total U.S. Bonds BND -0.07% 0.18% v
Mortgage Back Bonds MBB -0.66% -1.29% ^
Municipal Bonds MUB -2.8% -2.78% v
Click to enlarge

We make the following observations:

  1. The once-considered stable or less risky assets, such as municipal bonds and even total U.S. bonds, are showing negative trends, while the most risky assets such as FRN and Emerging Market Stocks (NYSEARCA:EEM), DBC and 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.
  2. Commodities have made strong upward movements. Note: We have switched our commodity tracking index from GSCI Commodity Index (NYSEARCA:GSG) to DBC. In our previous article, we discussed the two major themes in commodities investing: QE2 impacts and U.S. dollar devaluation, especially against commodity export countries' currencies (and possible inflation) and positive economic recovery in the U.S..
  3. Related to the two major themes and "least bad" U.S. economy, investors favor more and more U.S. stocks (consider European debt problems and inflation perspective in emerging markets).
  4. Both international REITs and U.S. REITs have shown strong fundamental and price performance. (See previous article here, and a comment in that article.)

[Click to enlarge]


In conclusion, 2010 has been an unusual year in many aspects. Going into 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; U.S. competitiveness has not increased, etc.), investors should keep cool heads and manage their portfolios accordingly. For now, we will stay on course and take appropriate action as evidence unfolds.

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