April 2014 update to the strategic global asset allocation model.
2014, so far, has been a volatile and choppy market here in the US. Global investors have begun to look outside the US for value opportunities – specifically within PIIGS countries (Portugal, Ireland, Italy, Greece and Spain).
This has caused a change in leadership within the model – and may be the start of a global shift in investors’ portfolio allocations.
Below is an update on my strategic global asset allocation model, including changes and a few key highlights.
How the global strategy performed in March:
Italy continues to be the outperformer in our global asset allocation strategy, while the tech heavy “QQQ” continues to weaken.
This may be the start of an “exit” from tech and a move into global markets where PIIGS countries, such as Spain, trade at a discount from their more established Eurozone counterparts.
At the start of 2014, PIIGS ETFs traded at substantial discounts compared to the MSCI European index. As the Eurozone strengthens, strategic global investors may be looking at these discounts as a reason to buy.
Changes to the global model for April:
European and PIIGS ETFs have shown the largest change in relative strength during the past month. It should also be noted that the tech heavy “QQQ” has been kicked out of the global top ten list as measure by relative strength.
Italy (“EWI”) and Spain (“EWP”) continue to outperform, which may continue as investors don’t want to miss out of the emerging markets bounce and rush into these ETFs.
Key Highlights- Global Markets:
(click to enlarge)
- Canada’s consumer spending increased in 2013 at a 3.1% annualized rate – higher than expected.
- Italian and Spanish based ETFs have surged so far in 2014, as investors look to potential value and strategic opportunities.
- Australia is starting to see a major shift in economic growth: consumer led growth is overtaking growth from mining.
- Is this the start of a shift from US technology into PIIGS?
Strategic Global Asset Allocation Model – Backtest Performance and Statistics
Year to date, our strategic allocation model has outperformed the S&P 500 after two back-to-back years of underperformance.
Below are statistics on the global model. Please note that these are backtested results based on relative strength rules. Results are provided by ETFreplay.
If you have questions or comments, feel free to contact me or leave a comment below.
Comments from the Fed and Janet Yellen have seemed to add an increasing level of volatility into the markets. I am starting to see a widening of trading ranges which may be why we are seeing increasing interest in PIIGS countries.
PIIGS ETFs have underperformed for the past few years as investors worried about how a slowdown in the Eurozone would impact these countries. As a result, we are now seeing large discounts between PIIGS ETFs and the MSCI index.
US tech investors may feel that the iPhone/Social Media technology run is nearing the end of its current cycle and are willing to shift into PIIGS countries hoping for a “bounce back” in valuations.
It will be interesting to watch our global asset allocation strategy to see if “QQQ” remains out of the top 10 in terms of global relative strength, or if the pullback in tech will be viewed as a buying opportunity.
Thanks and enjoy the start of Spring!