Asset Allocation 01 (Jun 09 - Jul 13)

[winston]

What Are Asset Allocation Numbers Telling Us? By Prieur du Plessis

The AAII Asset Allocation Survey polls its members on a monthly basis on their holdings among the principal asset classes. The results for December are as follows (with the long-term averages in brackets): stocks 62% (60%), bonds 20% (16%) and cash 18% (24%).

Investors are therefore at the moment allocating money more or less in line with the historical averages. Considering the chart below, one can see that the allocation to stocks reached a peak of 78% in January 2000 and levels close to 70% were maintained from 2004 to 2007. Allocation to stocks hit bottoms in October 2002 (43%) and March 2009 (41%).

Importantly, the extreme stock allocations all occurred at or close to major market turning points. The allocation statistics therefore serve as a useful contrarian indicator (although the 2004 to 2007 period probably would have taken one out of the market at quite an early stage).

But one can unfortunately not conclude much from the current numbers besides the AAII group of investors being fairly neutral at this juncture.

http://www.dailymarkets.com/stock/2011/ ... elling-us/

[winston]

Jan 5, 2011: Current Allocation: Equities 26%; Gold 7%; Short ETF 2%

Since early Jan 2011, I have increased my Equities exposure to about 41% from 26%.

I'm now no longer that positive on the EMs and will be reducing my EM equities exposure accordingly.

My reasons:-

1) The US economy is supposedly improving but it does not mean that my EM stocks would also do well. My EM stocks depends on inflows. The weak HKD and the low ADT on the HKSE is telling me that the inflow is not strong.

2) if the US market starts to do well, money would actually be flowing back from EM to the US. However, at this point in time, I think that the US market will just muddle along as it has already rebounded very sharply.

3) Tailwinds for the US markets include QE2 and any other stimulus ( Presidential Cycle ).

4) The weak USD could be also a catalyst for money to flow back to the US

5) Headwinds include Unemployment in Developed markets, European Contagion, China's Tightening, Lower prices for Commodity & Properties, Lower Margins from higher commodity prices and salary etc.

[winston]

5 Reasons To Like Or Dislike Stocks By Jim Farrish

I wanted to look at 5 reasons to like or dislike stocks looking forward:


One – Earnings have been upbeat with 50% of those reporting beating expectations. The outcome overall has been above expectations and forecasts for the majority are positive for the balance of the year.

Good earnings eventually win investors over. Thus, one vote in the positive category to like stocks and the market looking forward is positive earnings growth.


Two – Sales or revenue growth has been positive from those reporting earnings. In order to grow earnings you generally need revenue growth. The last twelve months companies have grown earnings by cutting costs and jobs, but you can only cut so much in order to grow earnings.

The railroad sector has reported stronger than expected earnings (see number one) and the reason was higher revenue due to increased traffic or shipping. The automobile and commodities (coal) were the largest increase. Rising demand trickles through the economy. The transition to revenue growth points to a growing economy which points in the direction of liking stocks.


Three – Improving economic data remains gradual, but steady. The estimates of 3-4% GDP growth is in favor of stocks, however you have to buy into the premise of this growth rate. I am not quite as optimistic relative to real growth in the US economy. Why?

The rising costs on the wholesale level is a vote in the camp to dislike stocks, or at least some sectors.


Four – Political static or interference will inject volatility in the markets. The most recent was the vote last week by Congress to repeal the healthcare bill. It pushed the healthcare sector down 3% and the healthcare providers were down more than 5%. This type of “help” from Washington isn’t going away anytime soon.

The current atmosphere in Washington is cooperation for job creation… I am not holding my breath, but this points to the need to watch stocks directly in the crossfire of Washington.


Five – Value over growth? While this is another debate within the debate relative to stock growth, value is taking the lead. The large cap stocks, as we discussed earlier this week, have out shined the small cap and growth stocks the last four weeks.

The bias is leaning in that direction and one worth watching as this year unfolds. Either way, this argument falls in the category of liking stocks.


I am on the side of liking stocks and the outlook is positive for the next 12-18 months. There will be volatility along with disappointments, but the overall outlook falls on the positive side. A short term pullback or correction would be a opportunity to add to, or establish new positions in equities.

http://www.dailymarkets.com/stock/2011/ ... ke-stocks/

[winston]

And when there's a crash, who will have the cash to buy ? Ah Ben & Company ?


SMALL INVESTOR EQUITY ALLOCATION CONTINUES TO CLIMB

Small investors are feeling more confident about the stock market and they’re putting their money to put. According to the AAII small investors now have the highest equity allocations since December 2009 (via AAII):

1) Stocks and stock funds accounted for 63.5% of individual investor portfolios. The historical average is 60%

2) Bonds and bond funds accounted for 19% of individual investor portfolios last month, an 11-month low. The historical average is 15%.

3) Cash allocations declined slightly to 17.5%. Cash allocations have been close to this level during three out of the past four months. The historical average is 25%.


http://pragcap.com/small-investor-equit ... s-to-climb

[winston]

TOL:-

It's been a while since I looked at my Asset Allocation so it's timely to review things:-

Equities: Reduced to 33% from about 40%
Gold: 7%
Short ETF: 2%

For the Equities portion, I still have too much exposed to China: 44%

[winston]

Feb 19, 2011
Equities: Reduced to 33% from about 40%
Gold: 7%
Short ETF: 2%
Exposure to China: 44%

Equities: Reduced further to 31% from 33%
Gold: 7% ( same )
Short ETF: 2% ( same )
Exposure to China: Reduced to 42% from 44%

Another Risk:-
Exposure to Asia: 83% ( need to diversify this risk too; too big an exposure to Asia )

[winston]

Since the market bottom of March 2009, U.S. stocks (as defined by the S&P 500 index) have nearly doubled – up 95%. Soaring stock prices translates into a $28 trillion increase in U.S. equity market capitalization. This is the biggest two-year increase in stock prices since 1955.

The march higher has been nearly straight up – stocks have risen 18 of the last 24 months. Without a doubt, stocks have been the place to be for the last two years.

If you'd put $1,000 into a global stock index fund (MSCI All-Country World Index) two years ago, you would have a little more than $2,000 today.

Making the same investment in commodities would have left you with $1,593...
Global corporate bonds would have left you with $1,277... and
U.S. Treasurys would have only gotten you $1,044.

And the rally probably isn't over yet, either...


Source: S&A Research

[winston]

From Dr. Check, The Standard HK:-

I think you should diversify your investments: keep 40 percent as yuan deposits or bonds, 20 percent in gold, 20 percent cash and 20 percent in stocks.

As for stock investments, make sure half are in blue chips as they pay a 3 to 5 percent dividend.

The other 10 percent can be put on stocks set to benefit from China's 12th Five-Year Plan.

So, no matter how volatile the market gets, you can enjoy a balanced return and get a good night's sleep.

http://www.thestandard.com.hk/news_deta ... 10824&fc=4

[winston]

Dr Check suggests holding a balanced portfolio with
1) yuan bonds or deposits,
2) high-yield currencies,
3) Hong Kong blue-chip,
4) stocks of US multinationals,
5) gold and
6) corporate bonds.


Source: The Standard HK

[winston]

I'm expecting Window Dressing to keep the market afloat for the next 2 weeks.

That means that if I want to reduce my exposure to Equities, I should do it during the last few days of September.

Current Allocation:-
Equities: 34%
AUD: 29%
EUR: 8%
Gold: 9%
Inverse ETF: reduced to 0%