Nvidia Turns Tech Around as Major Indices Reach Record Highs

Market Summary

US Market: 2/16/2024 - 2/22/2024

• All major US indices showed positive returns this week. The S&P 500 posted a performance of 1.55% followed by the Nasdaq and the Dow at 1.42% and 0.75%, respectively.
• Minutes from the Federal Reserve’s latest meeting indicated growing concern for cutting interest rates too quickly, with officials wanting more evidence that inflation is moving towards its 2% target. Markets are now pricing the first 25 bps rate cut in July.
• AI chip maker Nvidia set a one-day record on Thursday, with the share price soaring 16% after reporting stellar earnings results. The move added $227 billion to the company’s market cap, surpassing the $197 billion one-day gain in Meta from earlier in the month, and sending the S&P 500 and DJI to record closing highs.

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 experienced a return of 17.7% over the week, placing it in the top quintile for inception-to-date (ITD) performance and classifying the period as “Very Volatile”.
• Factor volatility rose to 26.3% this week, landing in the third quintile ITD and earning the classification of “Neutral”. Factor return was almost equally driven by style and sector factors.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio experienced a return of 14.9% this week, in line with last week’s results. This earned a classification of “Neutral”, ranking near the 50th percentile ITD.
• Similar to the prior two weeks, volatility remained driven by alpha, with only 19.8% of the week’s return coming from factors. This placed in the bottom quintile ITD, classifying as “Very Alpha-Driven”. Over two-thirds of the factor return was driven by country factors.
  

US Extreme Movers Portfolio Exposures

• The Energy sector constituted the largest allocation on the US portfolio this week. Oil, Gas & Consumable Fuels accounted for 21% of the total 22% position, which landed in the 96th percentile on a trailing-twelve-month basis.
• On the short side, Information Technology was the largest short position with a -35% allocation which landed in the 3rd percentile since inception. This short position was concentrated in Software which accounted for almost -20% of the total.
• Consumer staples made a big shift from last week going from the largest short to the second largest long allocation in the portfolio which puts it in the 92nd percentile since inception. Food Products and Consumer Staples Distribution & Retail were the most represented industries in this sector.

• Value factors surged notably this week, particularly relative to growth factors which marked a strong reversal from the week prior. Across all models, all value factors ranked in the top decile TTM and ITD.
• Quality factors also saw high levels this week. Investors preferred companies with strong management and profitability. The short section of the portfolio primarily drove this positioning, which points to the fact that low-quality names were particularly out of favor.
• Unlike the previous week, investors shifted away from favoring volatile growth stocks, leading to minimal exposures in growth and volatility Factors. Key drivers of this shift were short positions in Information Technology and Consumer Discretionary sectors.
• HF Crowding witnessed its lowest levels in the trailing twelve months which hints at significant challenges for hedge fund managers who hold popular long positions. Information Technology stocks were hit hardest.

International Extreme Movers Portfolio Exposures

• This week, Financials maintained the highest long allocation at 6%, landing in the 66th percentile on a trailing-twelve-month basis. Banks and Insurance industries led with approximately 4% and 3%, respectively.
• Like in the US, Information Technology saw the largest short allocation this week at -13%, ranking in the 5th percentile on a trailing-twelve-month basis. Semiconductors and Software emerged as the most represented industries, collectively contributing -8% of the total short allocation.
• Real Estate experienced a significant shift, rising from -3% to 4% allocation this week, positioning it in the 89th percentile YTD. Real Estate Management & Development stood out as the industry with the highest representation within this sector.

• This week, there was a big shift towards favoring value factors as most Barra and Axioma factors landed in the top quintile over the trailing twelve months. Notably, Axioma's value factor reached its 98th percentile. The increased long allocations in Real Estate and Banks were the main drivers in this positioning.
• Conversely, Quality factors experienced particularly low exposures this week, with Axioma's profitability hitting its lowest level over the trailing twelve months. This negative exposure was primarily driven by the short side of the portfolio which indicates that, unlike the US, higher quality stocks were out of favor.
• The long allocation on the Oil and Gas Industry contributed to a shift in exposure to the Wolfe Oil Beta factor which saw an increase from -0.12 to 0.19 this week.

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 Extreme Movers portfolio exhibited a bias towards Emerging Markets, with a 23% long allocation, placing it in the 86th percentile for the trailing twelve months. Conversely, Developed Markets showed notably low exposure, standing at -23%.
• Within Emerging Markets, Asia emerged as the most prominent region, with a 30% allocation, primarily attributed to China, which contributed by 44% to the total, placing it in the 99th percentile on a trailing-twelve-month basis. In contrast, Mexico saw the most significant short allocation, landing in the bottom decile on both a TTM and ITD basis.
• Developed Markets displayed negative allocations across all regions, with Asia standing out at a 13% short allocation. Japan contributed significantly to this negative exposure, accounting for -12% of the total and landing in the bottom decile for the TTM. This was primarily influenced by short positions in the Information Technology sector.
• Israel exhibited a low allocation at -2%, placing it in the 7th percentile for the trailing twelve months, this was primarily driven by the short portfolio.

Regards,
Jose