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
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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