U.S. Dollar – Global Yield – QVM – Commodities
February 6, 2017
Since December 31, 2005, the U.S. dollar ($USD) has appreciated by 9% while the Dow Jones Global Bond Index (DJGYLDT), Arrow Insights Quality Value & Momentum Index (AIQVM) and Arrow Insights Extended Commodity Index (AIECI) record cumulative returns of 152%, 99% and 3.3%, respectively. The best/worst period for commodities and smart equity indexes was the weak $USD period (2005-February 2008). The best period for global bonds occurred while the $USD was volatile and rising (February 2008-May 2014). The best/worst period for smart beta equity and commodities has been the strong $USD period since May 2014 (Figures 1-2). Exposure to each index hedges $USD risk associated with deflation, corporate defaults and rising inflation.
Figure 2 employs the Templeton Global Income Fund (GIM) for global bonds as a proxy for DJGYLDT because it is difficult to find a global yield index that employs government/corporate bonds and equities, let alone the broad diversification of DJGYLDT, which also includes real estate stocks. Figure 2 also employs the S&P 500 Equal Weight (SPXEW) and Reuters Jefferies CRB (CRB) indexes as proxies for smart beta and commodities.
InFocus Highlights (Figures 1–2 begin December 31, 2005 & end January 31, 2017):
- DJGYLDT, AIQVM and AIECI have returned 152%, 99% & 3.3%, respectively (Figure 1).
- GIM, SPXEW and CRB have returned 135%, 116% & -42.1%, respectively (Figure 2).
Figure 1. Hedging Dollar Risk
Figure 2. Hedging Dollar Risk
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