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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

DISCLOSURE: This report does not provide tailored investment advice. It was prepared without regard for specific circumstances and objectives. The securities shown may not be suitable for all investors. Arrow Insights recommends that investors independently evaluate particular investments and strategies. The appropriateness of an investment or strategy will depend on investor circumstances and objectives.

The contents are not an offer to buy or sell any security or to participate in any trading strategy. Arrow Insights and its affiliates, or its employees not involved, may have investments in securities or derivatives of securities of companies mentioned in this report, and may trade them in ways different from those discussed in this report.

Arrow Insights and its affiliate companies conduct business related to securities covered in its research reports, which may include market making and specialized trading, risk arbitrage and other proprietary trading, fund management, and investment services. Arrow Insights makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. Opinions or information in this report are subject to change without notice.

Reports prepared by Arrow Insights are based on public information and may or may not include the opinion(s) of the author. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals affiliated with Arrow Insights.

Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized.

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