The Riskalyze Report: Advisors Make a Rate Bet

1. Managed Futures (AQMIX)
2. Floating Rate (OOSYX)
3. Inflation Protected Bond (TIP)

Losers (advisor flows FROM these investments increased substantially):

1. Global Bond (TPINX, BNDX)
2. US Large Cap (VOO, DIA)
3. Emerging Markets (EEM)

Josh here – last week was an interesting one for advisor buying and selling in the portfolios they manage. These weren’t big moves, as Riskalyze CIO Mike McDaniels notes that advisor use of the “winners” rose 5% and their use of the losers declined by 5% week over week.

Even still, let’s look at what was added and subtracted. Traditional portfolio stalwarts, like global bonds and US large caps were on the wane, as was the vanilla emerging markets ETF.

In the winners column, we see TIPS and floating rate funds added – both bets that inflation and interest rates will be rising. June’s Fed meeting is gradually looking more and more like it will be the first rate hike since December kicked off the cycle.

The most added product, a managed futures fund run by Cliff Asness’s AQR, is a $12.2 billion vehicle with a 1.22% expense ratio. Managed futures is largely a technically-driven momentum strategy. AQR describes their approach thusly:

We invest in over 100 liquid futures and forwards contracts, both long and short, across global equities, fixed income, currencies and commodities. Trades are executed based on trend-following signals that aim to go long rising markets and short falling markets.

By establishing “long” positions in assets that we believe will rise in price, and “short” positions for assets that are expected to decline in price, this Fund seeks to benefit from both up and down price movements.

I’m not sure if I would definitively lump in managed futures as a rate bet, a la TIPS and floating rate bonds, but it certainly could be. 16% of the portfolio, as of the end of Q1, was engaged in commodity trades, while 30% was involved in currency bets.

*(to state the obvious, Riskalyze does not share client sensitive data with me or use animals in testing).