Tuesday, February 07, 2012

January A Risk On Month

As we noted in our fourth quarter investor letter, the new phrase repeated throughout 2011 was “risk on/risk off,” simply defined as buying riskier investments during positive market moves and selling riskier investments during downward moving equity markets. “Risk on” assets include stocks, commodities and high-yield bonds; whereas “risk off” assets include cash, U.S. treasuries and gold. Specifically, in a "risk on" environment, stocks that have higher betas tend to be favored by investors. Higher quality dividend paying stocks tend to move out of favor during these "risk on" phases relative to the higher beta investments.

January was certainly a case in point where "risk on" was the operative strategy. In January the average return for dividend payers in the S&P 500 Index trailed the non payers by 3.30 percentage points.

payers vs non payers 1 2012

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