Favorable US CPI Print Gives Investors Confidence

Market Summary

US Market: 5/10/2024 - 5/16/2024

• It was another strong week for US headline indices. The Nasdaq led the pack with a 2.15% return over the five trading days ending Thursday while the S&P 500 and Dow Jones Industrial Average followed at 1.59% and 1.22%, respectively.
• The Nasdaq, S&P, and Dow all reached all-time highs this week following the US CPI print on Wednesday. While year-over-year inflation clocked in at 3.4%, the monthly reading was 0.3% for April which came in on the lower end of expectations.
• The Meme Stock craze returned as Gamestop and AMC both surged strongly Monday and Tuesday as retail investors piled into the familiar stocks of January 2021 among others. This caused challenges for hedge fund managers who have maintained short positions in these stocks as well as other stocks that were caught up in the squeeze.

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 remained in the "Very Volatile" category this week, posting an 18.4% return for the week. That return lands in the 83rd percentile since the portfolio’s inception in 2007.
• Factors contributed 12.6% of the total portfolio’s return this week, categorizing it as "Very Alpha-Driven" for the second week in a row. This places the return in the 12th percentile since inception.
• Weeks that are both “Very Volatile” and “Very Alpha-Driven” are advantageous for fundamental investors as stock prices are moving strongly due to idiosyncratic reasons rather than common, systematic factors.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio recorded a return of 17.5% this week, classifying it as "Volatile". This return falls in the 76th percentile since its inception in 2007.
• Factor returns contributed 25.3% of the total, categorizing it as "Neutral" and placing it in the 42nd percentile since inception.

US Extreme Movers Portfolio Exposures

• Information Technology was the most represented sector this week, with a 9% allocation landing in the 59th percentile on a trailing twelve-month basis. Within this allocation, Semiconductors and Software were the two most represented industries, each holding a 5% share.
• Real Estate experienced a significant shift this week, moving from a -3% to an 8% allocation, landing in the 85th percentile since inception. All industries within this sector contributed positively to this allocation.
• On the flip side, Consumer Staples fell short this week at -8% , landing in the bottom quintile for both TTM and ITD. All industries contributed to this negative allocation, with Food Products contributing -4% alone.
• Financials saw the biggest shift this week, moving from 9% to -7%, landing in the 19th percentile for the trailing twelve months. This negative exposure came primarily from the short book, with all industries except for Capital Markets contributing to this decline.

• Beta and volatility factors saw notably high exposures this week, indicating that investors had strong risk appetites. All factors were above the mean levels for both TTM and ITD, with Barra’s Beta factor having the highest exposure. Both the long and short sections of the portfolio contributed to this allocation, suggesting that investors favored volatile stocks while betting against less volatile stocks.
• The performance of value factors was mixed. Dividend Yield was slightly positive, while Earnings Yield was notably low. This exposure stemmed from both long and short positions, with most of the short exposure coming from the short allocation to Financials.
• Crowding factors also displayed mixed results. HF crowding and ETF flow were low, landing in the 34th and 20th percentiles respectively for TTM. The short positions were the main drivers of these exposures, indicating that investors bet against names heavily present in hedge fund portfolios and ETFs. Conversely, Short Interest was favored as a result of the Meme stock rallies this week.
• Macro factors were low this week, particularly Interest Rate Beta, which landed in the 2nd percentile on a trailing twelve-month basis. Both the long and short sides of the portfolio contributed to this allocation, showing that investors bet against names with positive relationships to rates.

International Extreme Movers Portfolio Exposures

• For the International portfolio, Utilities saw the highest allocation at 7%, landing in the 95th percentile for TTM. All industries contributed to this exposure but the most represented was Independent Power and Renewable Electric Producers which contributed 4.4% alone.
• Industrials secured the second spot with a 5% allocation, landing in the 74th percentile since inception. This allocation is significant considering that industrials was the lowest sector last week. Marine Transportation was the industry with the highest representation at 5.5%.
• Information Technology was the sector with the lowest exposure at -7%, placing in the 14th percentile since inception. That allocation was driven largely by Electronic Equipment, Instruments, & Components and IT Services.
• Consumer Staples also saw a big shift as it went from having the highest allocation last week to the second lowest one this week at -5%. Food Products & Beverages were the main drivers each contributing by 2.2%.

• Value factors were highly favored this week, with all factors landing in the top quintile since inception. Specifically, Axioma’s Value factor reached the top percentile on a trailing-twelve-month basis. The long book was the primary driver of this allocation, indicating that investors favored cheaper stocks relative to book value and earnings. Industrials, Financials, and Real Estate were the primary sector contributors.
• Crowding factors were also notably high this week, with both factors landing in the top decile for TTM and ITD. For Short Interest, the majority of the exposure originated from the short book, suggesting that investors bet against names inversely correlated to popular shorts.
• Growth factors exhibited notable restraint this week, landing in the bottom quintile for both TTM and ITD. This exposure was predominantly derived from the long book of the portfolio, indicating that investors were bullish on names with low exposure to growth.
• Quality factors were mixed this week, Barra’s Profitability factor was notably low landing in the bottom quartile. Both the long and the short sides of the portfolio contributed to this exposure. However, Earnings Quality and Investment Quality landed close to the mean, suggesting a more balanced sentiment towards these factors.

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.

• Developed Markets continued to be favored with a 9% allocation, placing it in the 50th percentile on a trailing twelve-month basis and the 59th percentile since inception. This week, Europe & Middle East saw the highest representation at 20%, with the UK, Germany, and Italy being the main drivers of this allocation.
• Emerging Markets continued to control the short book with an allocation of -10%. Europe, Middle East, and Africa were the largest contributors to this short allocation. Notably, Saudi Arabia contributed -9% alone, landing in the bottom percentile for both ITD and trailing twelve months TTM.

Regards,
Jose