What is DALI?
DALI, which stands for Dynamic Asset Level Investing, is one of our asset allocation reports designed to give you a sense of the Relative Strength landscape within the broader market. It is generally the report we use to start our top-down analysis of the market. DALI serves as our asset class ranking tool, which helps us determine when to tactically overweight or underweight certain areas of the market based on Relative Strength.
Asset Class Rankings
The leftmost column of the DALI visual shows you how the asset classes are currently ranked in terms of Relative Strength with Domestic Equities the strongest asset class and Fixed Income the weakest asset class in the example below.
To develop these rankings, we analyze an equal number of proxies for each asset class using a Relative Strength Matrix. Each asset class is ranked by the combined number of Relative Strength buy signals for all of its proxies within the Matrix, which is the number that appears in each box.
Below is a snapshot of the proprietary Matrix underlying DALI. The actual tickers have been redacted, but the Domestic Equities proxies are shown in purple. As you'll notice, when added together the buy signal counts associated with each of those proxies total to 262, which matches the number shown in the Domestic Equities box of DALI.
An asset class's buy signal number does not tell you anything on its own, but the relative values for each asset class may be useful. For example, a widening gap between the top-ranked asset class and the rest would indicate further strengthening in that asset class, whereas a tightening gap would imply relative weakening and may portend a change in ranking.
Subcategory Rankings
Using the same process we did for the asset classes, we determine the areas of Relative Strength within each asset class. This allows us to allocate as much as possible to areas of strength while avoiding areas of weakness. This may be especially helpful if we need to maintain some minimum allocation to weaker asset classes and want to know where to focus those assets.
For example, even though Fixed Income is the lowest-ranked asset class, it is unlikely most investors would avoid Fixed Income altogether. Therefore, based on the below screenshot, you might choose to focus your Fixed Income allocation on US High Yield and US Preferreds & Convertibles since those are the areas of the Fixed Income market showing the most Relative Strength.
Each of these Relative Strength comparisons is independent from the broader asset classes, so the buy signal numbers shown bear no relation to the broader asset class number. Similarly, the Domestic Equities subcategory comparisons- Equal Weight vs. Cap Weight, Size-and-Style, and Sectors- are all independent of one another.
Investment Ideas
You can click on a subcategory name to view lists of stocks, ETFs, and mutual funds in that category.
Use the buttons in the top left of the DALI Ideas window to toggle between each of the lists. The lists are sorted by our technical attribute rating (stocks) or fund scores (ETFs and mutual funds). The list can be transferred to a Portfolio, Matrix, or other tool in the NDW platform using the Send to... button in the bottom right corner. To select certain securities from the list to send to another tool, select them using the checkboxes in the leftmost column before hitting the Send to... button.