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Tuesday, December 14, 2010

Chasing Returns as Asset Allovcation....Late to the Party ?

As is almost always the tendency of retail investors their footprint is seen in chasing top performing assets. This was clearly the case in November. Index Universe reviews the flows in November. Money flowed to (surprise !) emerging markets and small cap stocks in November quite late to the party after these asset classes are closing out a year strongly outperforming the broad based stock and bond indices.

As I have mentioned there is a strong tendency for such flows to continue at year end and the beginning of the new year. After that it is anyone's guess but the large flows of funds into the market that is late to the party leaves the market vulnerable to a sharp selloff should these asset classes start to fall.

Looking at the ytd  relative performance of the funds with the major inflows vs the sp 500, total us stock market (vti) and aggregate bond index (AGG) it's pretty clear the flows chased performance

Here is the table with dollar inflows in millions.:

VWO Vanguard Emerging Markets Vanguard 1,734.80

VO Vanguard Mid-Cap Vanguard 1,322.14

IWM iShares Russell 2000 BlackRock 1,201.37

VB Vanguard Small-Cap Vanguard 833.40

IWD iShares Russell 1000 Value BlackRock 669.54

SLV iShares Silver BlackRock 567.84

VBR Vanguard Small-Cap Value Vanguard 494.27

VBK Vanguard Small-Cap Growth Vanguard 484.19

FAS Direxion Daily Financial Bull 3x Direxion 404.85

MINT PIMCO Enhanced Short Maturity Strategy PIMCO 403.29

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