NEW YORK ( ETF Expert) -- A do-it-yourself investor would be wise to track institutional money. Are there surprising, or not so surprising, moves that advisers make via their block trades?Often, the activity will give you the heads-up if advisers like myself are on their way to a party before the rowdier guests arrive. Similarly, tracking block allocations might tell you whether or not advisers, asset managers and/or hedge fund gurus are leaving an enthusiastic celebration early to watch digitally recorded episodes of Breaking Bad. For example, PowerShares Emerging Market Sovereign Debt ( PCY) has caused more portfolio pain than portfolio pleasure in 2013. Fortunately, for clients who had owned PCY, we minimized loss with stop-limit orders during the May-June rout of higher-yielding income assets. PCY had served us so well since 2009. Shortly after Federal Reserve Chairman Ben Bernanke's taper talk on May 22, however, our mechanical and unemotional sell discipline removed the asset from our accounts. Then, in September, the 10-year yield tickled 3%, while the Federal Reserve backtracked on its anticipated policy change. Ever since, yield sensitive assets have been gaining ground. In fact, for the past few days, PCY has picked up more than 100 million in assets on twice the average trading volume.
Another trend that may be perplexing to those who "value" fundamental valuations: small-cap stocks have not been this strong compared to large-cap stocks since the previous government impasse in July 2011. The relative strength of iShares Russell 2000 ( IWM) against the SPDR S&P 500 Trust ( SPY) as seen in the IWM:SPY price ratio tells us that small-caps were not that concerned by rising interest rates in the 2013 May-June swoon. Similarly, small-caps are not sweating the government showdowns over the budget or the debt ceiling. In fact, IWM is still a mere fraction off its record peak, whereas the S&P 500 and the Dow Jones Industrials are several percentage points below their highs.
Courtesy of StockCharts.com Due to overvaluation concerns, I have been less willing to add to domestic small-cap exposure. We already maintain a rather significant commitment to iShares Small Cap Value ( IJS). On the other hand, noting the ability of developed market small caps to "overlook" interest rate uncertainty as well as political uncertainties, I have been willing to acquire iShares MSCI EAFE Small Cap ( SCZ) for growth-oriented portfolios. (Not that a 3% yield from developed market small-caps is chopped liver.) Comparing SCZ to its bigger brother, iShares MSCI EAFE Index Fund ( EFA), confirms a very similar trend to the one that is taking place in the U.S. stock market. Courtesy of StockCharts.com Follow @etfexpert This article was written by an independent contributor, separate from TheStreet's regular news coverage.