We place a lot of confidence in the services of BCA Research and Ned Davis Research, two independent investment strategy research firms. We’ve been waiting for them to give the thumbs-up for stocks before increasing our exposure. Yesterday, NDR’s Chart of the Day was titled Getting More Aggressive–Now Overweight Equities, Favoring Small-Caps [my underlining].
Here are the bullet points from the report, all verbatim:
- Now overweight equities for first time in more than two years .
- Now underweight bonds.
- Now favoring small-caps over large-caps.
One last quote from the report: “We are also continuing to emphasize emerging markets, which are overweighted by our Six-Way Global Equity Allocation Model.”
We haven’t yet had a chance to sit down and discuss how we’ll act on this, whether to wait for a pullback or begin to average in, but we will shortly. Stay tuned.
The chart below compares the price performance amongst the MSCI Emerging Markets index (yellow), the Russell 2000 Small-cap index (orange), and the S & P 500 (green), all indexed to 100 at the beginning of the year.
With respect to BCA Research, that firm has yet to come around to the idea of overweighting stocks. Their primary model, which is designed for capital preservation, still argues for 0% stocks, although they have overridden that signal in recent weeks. In contrast to NDR, they find the prospects for bonds to be quite appealing and suggest that investment-grade bonds could outperform stocks over a 12-month time horizon.