China Soars as Stimulus Efforts Strengthen Investors Sentiment

Market Summary

US Market: 9/13/2024 - 9/19/2024

• US headline indices saw modest returns this week. The Nasdaq posted the highest returns at 0.98%, followed by the S&P 500 at 0.56%, and the Dow at 0.36%.
• US stock futures are declining following the early week market rally, while European stocks are on the rise. Treasury yields and the US dollar gained ahead of the PCE inflation report. In Japan, the Yen strengthened after Shigeru Ishiba, a proponent of policy normalization, was named the new leader of the ruling LDP.
• China is continuing its stimulus efforts as the central bank lowered the reserve requirement for banks, increasing liquidity to support the economy. While these measures have caused technical issues on the Shanghai Stock Exchange, Chinese stocks have still posted their strongest weekly performance since 2008.

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 Mover Portfolio delivered a 15.5% return this week, placing it in the "Volatile" category. This performance ranks in 57th percentile for trailing-twelve months and 70th percentile since inception.
• Factors accounted for 30.8% of the total return, landing in the “Factor-Driven” category. This factor return lands in the 80th percentile from trailing-twelve months and 72nd percentile since inception.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme movers portfolio showed more volatility as it had a 19.9% return, landing in the “Very Volatile” category. This return lands in the 98th percentile for trailing-twelve months and 87th percentile since inception
• This week was Very Factor-Driven as factors accounted for 40.9% of the total return. This level of factor return placed on the 96th percentile for trailing-twelve months and 92nd percentile since inception.

US Extreme Movers Portfolio Exposures

• Software and Semiconductors & Semiconductor Equipment provided a huge swing in Information Technology for the third straight week. Tech’s 25% long allocation reached the 93rd percentile since inception just one week following a 26% short allocation.
• Health Care reached its largest short allocation of the trailing twelve months and its 1st percentile since inception with a -33% position. Life Sciences Tools & Services and Biotechnology accounted for 16% of the 33% short.
• All Industrials industries were positive this week which led to an 18% long allocation. That allocation climbed to the 98th percentile over the trailing twelve months and the 97th percentile since inception.

• The long allocation to Information Technology and the short allocation to Health Care led to continued alignment with beta factors but particularly strong aversion to residual volatility factors. Barra’s Residual Volatility exposure fell to the 6th percentile on a TTM basis.
• Investors heavily favored growth over value factors this week. Axioma’s Growth factor reached its highest exposure on a TTM basis and its 93rd percentile since inception. That elevated exposure was driven mostly by the short allocations to Health Care and Financials which points to the fact that investors were selling stocks with less sales and earnings growth prospects.
• Stocks that tend to benefit from lower interest rates underperformed while investors flocked to stocks that tend to benefit from higher rates which was a reversal from the prior week where alignment followed the Fed rate cut announcement.
• Crowding factors hinted at a beneficial climate for hedge fund managers. HF Crowding’s high positive exposure and Short Interest’s negative exposure indicate that popular longs outperformed and popular shorts underperformed.

International Extreme Movers Portfolio Exposures

• Meta’s & Mining stocks in Asia and Australia were in favor in the international portfolio this week which led to a 13% long allocation to the Materials sector. That allocation fell in the 92nd percentile on a trailing-twelve-month basis.
• All Health Care industries contributed to a 13% short allocation which marked just the 2nd percentile on both a TTM and ITD basis. Pharmaceuticals was the most underweight sector with a -3.4% allocation.
• The Consumer Discretionary sector reached its top quantile on a trailing-twelve-month and inception-to-date basis. Automobiles and Hotels, Restaurants, & Leisure accounted for more than 6% of the 7% long allocation to the sector.

• Style factor exposures were significantly stretched in ex-US markets this week. Residual volatility factors moved well into the top decile which points to strong risk appetite among investors. This was particularly evident in Industrials and Consumer Discretionary.
• Value factors were very much in favor across risk model providers. Axioma’s Dividend Yield factor reached its highest level over the trailing-twelve-months which was driven heavily by the short allocation to Health Care.
• All sector allocations contributed to the positive exposure to Wolfe’s Oil Beta factor as Crude worked to recover from mid-September lows. Metals & Mining and Oil, Gas, & Consumable Fuels stocks accounted for 0.14 of the 0.4 exposure.
• Unlike in the US, the ex-US portfolio had a very high exposure to the Short Interest factor which indicates that hedge fund managers likely faced headwinds from popular short positions.

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.

• This week, the International Portfolio showed a massive bias toward Emerging Markets. The 41% long allocation to EM reached the 93rd percentile since inception.
• The story in EM was told almost entirely by China, whose 60% long allocation was its highest recorded since the international portfolio’s inception in 2007. This favorability comes amid the announcement of the country’s new economic stimulus package.
• In Developed Markets, Japan was the standout, continuing its streak of short allocations. The 16% allocation was driven heavily by Information Technology and Consumer Discretionary stocks.

Regards,
Jose