The Flow Whisperer – TAARSS says prefer Equities and Corporates in November Deutsche Bank – Synthetic Equity & Index Strategy – Global
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Tactical Asset Allocation Relative Strength Signal (TAARSS) Monthly Update
Top recommendations for November: Corporate HY, and US, European, Indian, and Chinese equities.
US Large Cap-Small Cap positive spread supported by ETF flows
In October the Large Caps (SPY) outperformance over Small Caps (IWM) reached levels above 3% towards the month’s end. Interestingly, we saw a clear flow divergence between these two segments during the first half of the month with Large Caps receiving inflows and Small Caps recording outflows, before both segments began to receive inflows consistently (Figure 1).
Corporate credit ETFs received largest monthly allocations ever on risk comeback during October
US Treasury ETF flows opened with a strong momentum following the recent safe-haven trends; however the trend began to revert just before the mid-month mark. In the meantime, Corporate credit ETFs went on to register one of their strongest flow trends on record, fueled by the largest-ever dollar monthly flow allocations received by HY (+$5.5bn) and IG (+$3.3bn) as investors orchestrated a comeback to risk assets (Figure 2).
Tactical positioning for November 2015 based on TAARSS
- Prefer global equities and high-beta-to-equity fixed income segments such as HY corporate credit. Continue to avoid commodities.
- Prefer a balanced global equity approach including US, Intl DM and EM.
- For US equity exposure prefer large caps, with support favoring particularly Consumer Staples and Tech.
- For Intl DM equities prefer Europe over Asia Pacific, stay neutral to Japan. Implement Europe via regional exposures rather than country allocations.
- For EM equities, continue to prefer Asia over Latin America and Eastern Europe. Within Asia we prefer India and China.
- In Fixed Income, prefer credit over rates. Implement this via corporate IG or HY credit; while avoiding US Treasuries.
