Alpha Continues Strong Run as Earnings Season Winds

Market Summary

US Market: 8/4/2023 - 8/10/2023

• US headline indices faced a downward trend this week, following a brief initial increase that persisted until Tuesday. The Nasdaq encountered the most significant decline, registering a return of -1.5%, followed by the S&P which saw a decrease of -0.7%. The Dow, while only slightly affected, concluded the week with a marginal decline of -0.1%.
• Ecuadorian presidential candidate Fernando Villavicencio was assassinated after a campaign rally in Quito. In response, the local government declared a national state of emergency, amplifying the prevailing political instability across South America.
• Biden suggested that China’s recently booming economy may be a “Ticking Time-Bomb”. This remark comes in light of indications of deflation, falling exports, slowing housing markets, and reduced levels of private investment.

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

• The US Extreme Movers portfolio achieved its highest return since the start of June, reaching a performance of 21.4%. This categorizes the week as 'Very Volatile' and positions it within the 90th percentile since 2007.
• Factor contribution rose to 13.4%, placing it in the 14th percentile and maintaining the same classification as last week of "Very Alpha-Driven".

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International portfolio finds itself on the border between 'Neutral' and 'Calm', achieving a return of 14% (13.99%). This places it in the 24th percentile year-to-date and the 39th percentile since inception.
• Factors accounted for 18% of the total return, placing this week in the “Very Alpha-Driven” category, mirroring the trend in US Markets. This marks the second most alpha-driven week of the year, surpassed only by the week of May 11th during which factors accounted for 17% of the total return.

US Extreme Movers Portfolio Exposures

• Oil, Gas, & Consumable Fuels made up the entirety of this week’s 18% long allocation to the Energy sector in the US portfolio. That 18% allocation landed in the 94th percentile on a trailing twelve-month basis and was Energy’s highest since October 2022.
• Information Technology was out of favor this week with a 10% short allocation. Most industries were quiet with the exception of Software, which was the key driver of the sell-off.
• Despite just a 2% short allocation, Health Care showed quite a bit of dispersion. Pharmaceuticals and Biotech held a 10% long allocation while the portfolio was 11% short Health Care Equipment & Services.

• The US portfolio showed signs of a “risk off” market sentiment and a bit of a flight to quality. Beta and residual volatility factors declined to the bottom quintile since inception in some instances, largely due to the short allocation to Information Technology.
• Value factors crept higher while growth exposures remained negative. Earnings Yield was particularly in favor of Energy and Health Care stocks.
• The portfolio maintained an alignment to stocks with positive relationships to oil prices and interest rates, while popular short stocks were hit hard.

International Extreme Movers Portfolio Exposures

• The International portfolio also leaned into Oil, Gas, & Consumables stocks, albeit to a lesser extent. Canadian stocks claimed the highest concentration.
• Pharmaceuticals accounted for a 6% long allocation but were partially netted out by short allocations to Health Care Equipment & Supplies and Providers & Services.
• Materials remained the most underexposed sector in the international portfolio this week. Metals & Mining and Chemicals stocks accounted for the entirety of the 5% short allocation.

• Style exposures were fairly balanced this week in the International Extreme Movers portfolio but did still point to some risk-averse sentiment among investors.
• Like the US portfolio, International leaned into quality and macro factors and away from beta and residual volatility factors. The Profitability factor exposure in Axioma’s Worldwide Fundamental model reached the 99th percentile on a trailing-twelve-month basis.
• The exposure to Wolfe’s Short Interest factor climbed to 0.46 which indicates that hedge fund managers likely felt some adverse pressure this week on the short side of their books.

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.

• Favor flipped this week to Developed Markets over Emerging Markets with a particular focus on Europe. EM Americas claimed the most significant regional short allocation in the portfolio.
• Brazilian stocks struggled as the portfolio maintained a 13% short allocation across sectors. Of the 26 Brazilian stocks in the portfolio this week, 25 were held in the short book.
• India’s allocation reached its 97th percentile since inception as the 9% long position topped the list in Asia.

Regards,
David