Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Portfolio Asset Allocation Analysis

Portfolio / Investing 2009 Sep 30, 2009 - 09:45 AM GMT

By: Richard_Shaw

Portfolio

Best Financial Markets Analysis ArticleIt can be useful to know how the average other guy is allocating assets, whether you are inclined to follow the crowd or to do something else.


Asset Allocation Among Public Investment Funds:

This table shows the asset allocation among public investment funds available in the U.S.  segmented by equity funds, bond funds, money market funds and hybrid funds (they invest in both stock and bonds).  There is no separation of domestic, international and global assets in these data.

These figures do not include variable annuities.  The figures do include assets from both individual investors and institutions or private funds that invest through public funds.

The current equity allocations are the lowest they have been in the past twelve years, except for 2008 and 2002, both bear market bottom areas. That suggests there is more money yet to be allocated to stocks as risk aversion abates.

Bond allocations are the highest they have been in twelve years, which we expect is as much a function of the aging baby boomers as it is risk aversion caused by the recent bear.

Money market assets are higher than the twelve-year average, but not as high as they were in 2008 or 2002.  What we don’t know is how much money market oriented cash has migrated to bank CD’s due to the combination of negligible money fund rates, and the loss of faith in the $1.00 fixed price of money funds due to the 2008 debt market liquidity freeze.

Hybrid funds have somewhat below average allocation, but the category is not major.

Keep Perspective When Reading News:

Beware of forming opinions with data out of context.  For example, on September 28, Bloomberg published an article with a correct fact, but perhaps a false implication.  The article was titled “Obama Stock Advance Persists on Money Fund Hoarding“. The first paragraph said:

“Americans holding $3.5 trillion in cash are giving money managers increasing confidence that the stock market rally under President Barack Obama will continue through the end of the year.“

The financial data is right (the Obama linkage to the money fund data is a gratuitous toss-in) and the implication that the entire $3.5 trillion may flow to stocks is essentially false.

By examining historical allocations, it is clear that over up and down cycles, there are substantial money fund holdings.  Over the past twelve years, the lowest money fund allocation among public funds was about 23%, which translates to a likely stable cash reserve in money funds today of about $2.3 trillion.

Our impression is in accord with the Bloomberg article, in that there is cash on the side to come into stocks, but we would judge the amount of money available for reallocation to stocks to be more like $1.2 trillion.  That amount is fairly consistent with a fact found later in the Bloomberg article, “Investors placed $1.45 trillion in U.S. money market funds in 2007 and 2008.”

It looks to us as if the amount of money that moved into money funds during the declining market is the amount of money that may come back to stocks, not the total amount in money funds.

Assets by Type of Fund:

Mutual funds in August accounted for 92.5% of public investment fund assets in the U.S., while ETFs accounted for only 5.7% of assets.  UITs and CEFs made up the difference.

Average Fund Dividend Rates:

In 2008, the total of all fund dividends (from interest and dividends received from fund underlying assets) was 2.66% of all fund assets — bond funds, stock funds, hybrid funds and money market funds combined.

Total Fund Assets:

Public investment funds available in the U.S. in August totaled $10.4 trillion.

U.S. Fund Assets vs Worldwide Fund Assets:

Total mutual fund  assets in the U.S. in 2008 were $9.7 trillion, while worldwide mutual fund assets were $19.0 trillion — 51% of worldwide mutual fund asset were in funds available through the U.S.

Index Funds:

Index funds have an increasing role in portfolios. In 2008, 13% of equity funds were index funds, up from 8.9% ten years earlier, and up from 3.3% fifteen years earlier.  S&P 500 index funds account for 40% of index fund assets.  That means that SPY, IVV, VFINX and other S&P 500 index funds account for 5.2% of public equity fund assets.

Number of Funds vs Number of Stocks:

There were over 10,000 public funds (8,889 mutual funds, 646 closed-end funds, and 743 ETFs) registered in the U.S at year-end 2008, which is substantially more than the number of US stocks that most investors would consider owning.

The S&P 500 index (proxy SPY or IVV) covers 500 stocks.  MSCI U.S. Prime Market index (proxy VTI) covers about 1,750 stocks.  The Russell 3000 index (proxy IWV) covers 3,000 stocks, and the Dow Jones Total Market index (proxy TMW) covers 5,000 stocks.

It’s been this way for a long time, but keep in mind that there are more investment funds available than there are individual stocks worth thinking about.  Are there really enough good ideas to support that many fund portfolios with differentiated composition, approach or results?  Probably not.

Allocation Redux:

After allocating the hybrid funds 60/40 to stocks/bonds (an assumption based on the “classic” balanced fund model), the current allocation of public fund assets available in the U.S. is about 47% equities, 19% bonds and 32% money market funds.

We speculate by looking at past allocations and the likely trend toward somewhat higher bond allocations, that when markets normalize, the average allocation will be something like: 55% to 60% equities, 30% to 35% bonds, and 5% to 10% money markets.

Of course averages can be deceptive.  Two investors, one 100% stock and one 100% bonds, have an average allocation of 50%/50%, yet neither looks anything like that.  Nonetheless, based on millions of accounts the averages are potentially helpful to understand as you decide to go with or against the crowd.

Disclosure:  We hold several of the named securities in various portfolios.

By Richard Shaw 
http://www.qvmgroup.com

Richard Shaw leads the QVM team as President of QVM Group. Richard has extensive investment industry experience including serving on the board of directors of two large investment management companies, including Aberdeen Asset Management (listed London Stock Exchange) and as a charter investor and director of Lending Tree ( download short professional profile ). He provides portfolio design and management services to individual and corporate clients. He also edits the QVM investment blog. His writings are generally republished by SeekingAlpha and Reuters and are linked to sites such as Kiplinger and Yahoo Finance and other sites. He is a 1970 graduate of Dartmouth College.

Copyright 2006-2009 by QVM Group LLC All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

Richard Shaw Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules