Inflation Persists, Trade Tensions Rise

Market Summary

US Market: 3/21/2025 - 3/27/2025

• The U.S. Commerce Department reported that the Core Personal Consumption Expenditures (PCE) Price Index rose by 0.4% in February, with a year-over-year increase of 2.8%, surpassing the anticipated 2.7%. This uptick suggests persistent inflationary pressures, potentially influencing the Federal Reserve's monetary policy decisions.
• President Donald Trump declared a 25% tariff on imported automobiles, aiming to bolster domestic manufacturing. The announcement led to declines in global automaker stocks, with General Motors and Ford shares falling over 7% and 3.9%, respectively. Investors are concerned about potential disruptions to supply chains and increased consumer prices
• In the first quarter of 2025, China accelerated the issuance of government bonds to the highest level on record, issuing approximately 3.28 trillion yuan ($451.56 billion). This strategy aims to stabilize economic growth amid ongoing trade tensions with the United States, reflecting China's efforts to bolster its economy through increased fiscal measures

Extreme Movers Portfolio Performance

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

US Extreme Moves Volatility and Factor-Driven Speedometers

• The US Extreme Movers portfolio saw an 11.6% return this week, ranking in the 71st percentile for the trailing twelve months and the 80th percentile since inception. This level of performance marks the week as being “Calm”.
• Factors accounted for 22.7% of the total return, placing the portfolio in the “Neutral” category. This ranks in the 78th percentile for the trailing twelve months and the 70th percentile since inception.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio earned a 15.2% return, placing it in the "Neutral" category for the week. This return ranks in the 86th percentile over the trailing twelve months and the 77th since inception.
• Factors accounted for 30.7% of the total return, which classifies as “Factor Driven". This level of factor return is in the 47th percentile for the portfolio over the trailing twelve months and the 44th since inception.

US Extreme Movers Portfolio Exposures

• The Communication Services sector was the largest sector in the US extreme movers portfolio with a 14% allocation this week. This was the sector’s highest allocation over the past year and placed in the 98th percentile since the portfolio started. Within the sector, the Media industry accounted for 8% of the portfolio.
• Consumer Discretionary was the second-largest allocation in the portfolio at 13%, ranking in the 85th percentile for the past twelve months and the 84th percentile since the portfolio's inception. Specialty Retail was the biggest Industry contributor at 9%.
• Health Care was the least represented sector this week, registering a -21% allocation. This placed the sector in the 13th percentile over the past twelve months and the 5th percentile since the portfolio’s inception. The majority of this short allocation came from the Health Care Providers & Services and Health Care Equipment & Supplies industries, each of which made up -8% of the portfolio.

• Value Factors were split this week as Dividend Yield factors were out of favor, and Earnings Yield factors were moderately in favor.
• Dividend Yield factors all hovered around the bottom quintile threshold for the trailing twelve months. Across all three models, the Materials short was the consistent detractor, as investors looked to sell names with high exposure to the factor.
• Positive exposure to Earnings Yield was driven by the portfolio’s short Health Care position across all three models, indicating that investors were selling names with low exposure to the factor in the industry.

International Extreme Movers Portfolio Exposures

• The Energy sector was the most represented sector in the International portfolio this week, with an 8% allocation. This places the sector in the 96th percentile for the trailing twelve months and the 85th percentile since the portfolio's inception. Within this sector, Oil, Gas & Consumable Fuels was the leading industry, making up 7.7% of the portfolio allocation.
• Financials ranked as the second most represented this week, with a 5% allocation. This places the sector in the 45th percentile for the trailing twelve months and the 62nd percentile since the portfolio's inception. This exposure was driven primarily by Banks at 7.7%.
• Health Care was the least represented sector in the International portfolio as well, its allocation was -10% this week. This allocation places the sector in the 10th percentile for the trailing twelve months and the 6th percentile since the portfolio's inception. Life Sciences Tools & Services drove most of the negative exposure for the sector at -4.1%.

• Beta & Volatility factors reversed course in the International portfolio and were decidedly out of favor this week. Three of four factors in the group were at or just above their lowest exposure over the trailing twelve months. The low exposure was driven by the short book and the long Financials position, as investors sold high-risk names generally but bought low-risk names in the Financials sector.
• Value was in favor this week, especially as measured by Barra. This was driven by the long Energy and the short Industrials positions in the portfolio.
• Quality was also in favor this week. All factors placed in the top decile over the trailing twelve months, with Axioma’s profitability recording its highest exposure over the period. The Industrials short in the portfolio was the consistent driver of this exposure within the group, as investors sold low-quality names in the sector.
• HF Crowding placed in the 91st percentile over the trailing twelve months, and the 82nd since inception. This was driven by the short book, and the Industrials short in particular, indicating that international investors were selling unpopular HF longs.

International Extreme Movers Portfolio Country Exposures

This 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.

• Emerging Markets were in favor this week with a 5% allocation, placing the region in the 59th percentile for the trailing twelve months and the 54th since the portfolio's inception. Developed Markets saw a -4% allocation this week, which placed the region in the 33rd percentile for the trailing twelve months and the 38th percentile since the portfolio's inception.
• Within Emerging Markets, Europe, Middle East & Africa had the highest allocation at 9%, with Saudi Arabia the largest contributor at 7%.
• For Developed Markets, Europe & the Middle East had the lowest allocation at -22%, with France and Germany being the primary detractors at -7% each.

Regards,

Colin