Alpha Available in Value Stocks

Market Summary

US Market: 7/21/2023 - 7/27/2023

• US headline indices saw mixed performance this week. The Dow posted a return of 0.16% for the 5 days ending 7/27. A slip on Thursday ended 13 days of gains that marked its best winning streak since 1987.
• The S&P 500 also suffered a Thursday slip, coming in at 0.06% for the 5-day period, despite closing at a 15-month high on Tuesday. The Nasdaq ended lowest at -0.09%.
• The Fed announced a 25 bps rate hike following its July 25-26 meeting, marking the 11th hike in the past 12 meetings. Data for annual inflation slowed considerably in June gaining just 3%, which has Wall Street optimistic that another hike before year-end may be avoidable.

Extreme Movers Portfolio Performance

Note: Extreme Movers definitions can be found in Factor University on our website.

US Extreme Movers Volatility and Factor-Driven Speedometers

• Volatility continued as markets navigated a mixed earnings season. The 16.4% return for the US Extreme Movers Portfolio represents the most volatile week since early June, situating the portfolio's performance in the 67th percentile since inception.
• Factors accounted for 19.6% of the total portfolio volatility. This categorizes the week as “Alpha-Driven” as it fell in the 35th percentile since inception.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The 16.2% return in the International portfolio represented the most volatile week in over a month. It ranked in the 66th percentile since inception.
• Factor contribution to return increased from 20.2% to 28.3% this week. This places the current week's factor contribution in the 45th percentile on a trailing twelve-month (TTM) basis and the 55th percentile since inception.

US Extreme Movers Portfolio Exposures

• This week saw strong allocations to Energy and Financials. The positions in Energy were exclusively in the Oil, Gas & Consumable Fuels industry, while Financials was led by strong allocations to Banks and Insurance.
• Information Technology took the biggest hit, representing -25% of the portfolio. While all industries contributed to this negative allocation, Software led the race at -11%, followed by Semiconductors & Semiconductor Equipment at -7%.
• The allocation to Communication Services had the lowest Trailing Twelve Months (TTM) percentile from all sectors. It can be attributed to negative positions of -4%, -3%, and -2% in Media, Entertainment, and Interactive Media & Services, respectively.

• The portfolio significantly shifted against Growth from both sides of the book, with investors taking long positions in anti-growth names and short positions in growth-behaving ones. Additionally, there was a movement toward Value, but only on the long side, indicating a preference for value-behaving names.
• The portfolio saw a heavy negative exposure to Hedge Fund Crowding, coming exclusively from the short book. This implies that investors fled against popular long positions throughout the week. The Exposure landed in the bottom decile ITD.
• Beta and Volatility factors drifted towards a negative exposure, mostly landing in the bottom quintile Inception-to-Date.

International Extreme Movers Portfolio Exposures

• Information Technology in international markets shifted from being the most positive allocation last week to the most negative this week. This marks the largest short allocation to the sector since its inception in 2007. Semiconductors & Semiconductor Equipment was responsible for almost half of this allocation.
• Industrials also suffered from heavy underexposure, landing in the 1st percentile TTM. The short allocation came from almost all its sectors, most notably Aerospace & Defense, and Marine Transportation.
• Metals and Mining paved the way for the large positive allocation to Materials, while Real Estate Management & Development was the sole positive contributor to the 6% allocation to Real Estate.

• Beta and Volatility exposures landed in opposite directions from those of last week. Volatility exposure landed in the top decile ITD, while Beta factor exposures landed in the bottom half, both on a TTM and ITD basis.
• Growth exposure remained high, while Value exposure remained relatively neutral. The sole exception is Dividend Yield, which increased to the bottom quartile ITD, led by the long side of the book
• Oil Beta shifted drastically, from one of the most negative allocations last week, to one of the most positive this week on an ITD percentile basis. This exposure came from the long book, suggesting that investors favored positions that have a positive relationship with rising interest rates.

International Extreme Movers Portfolio Country Exposures

The chart presents the portfolio's exposures to various groups in the Developed and Emerging Markets, highlighting the three most notable country contributors for each respective group's allocation.

• Investors favored Emerging Markets over Developed Markets this week, opposite to what was evidenced last week. The DM allocation landed in the bottom quintile TTM and bottom quartile ITD, while the EM allocation landed in the top quartile both on a TTM and ITD basis.
• China stole the headlines again, this time as the most positive contributor with a whopping 32% allocation. Brazil followed at 14%. Israel at 4%, and Germany, France, and Japan at 3%, were the most negative country allocations.

Regards,
David