The Riskalyze Report: Sellers Lack Conviction

Week of November 2nd – November 8th 2014:

Winners = top investments purchased by advisors for client portfolios that week
Losers = investments that advisors sold out of in client portfolios that week

Winners (advisor flows TO these investments increased substantially):

Passive Equity Funds (DFLVX, DFQTX, VTI, SPY, IVE)
First Eagle Global (SGENX)
Permanent Portfolio (PRPFX)

Losers (advisor flows FROM these investments increased ):

Short Term Bonds (VFSTX, SHY)
Putnam Capital Spectrum (PVSYX)
Berkshire Hathaway (BRKB)

Josh here – passive allocators were back in force last week as the entirety of the September/October correction had been retraced over the course of less than 20 days. The speed and magnitude of the S&P 500’s loss retracement is something I don’t think any of us has ever seen before, it’s just blinding. Advisors aren’t going to let another year turn into a double-digit win without their (close to) full participation.

Riskalyze’s Mike McDaniel told me something interestingI relay to you here: “Still not seeing the ‘conviction’ in the loser statistics like we are seeing in the winners. In other words, the % and $ moves into winners trumps the % and $ from the losers.”

I think this is the key to v-shaped bottoms. The sellers seem to be forced – hedge funds with bets that were too big on too much leverage. It doesn’t seem to be investors selling, just specs, during each of these corrections.

The investors (and advisors) aren’t taking profits with any conviction. They want to be long, not out.

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