Oil Prices Surge as Investors Fear Supply Disruptions

Market Summary

US Market: 9/27/2024 - 10/3/2024

• US headline indices saw mixed returns this week. The Dow posted the only positive return at Dow at 0.23%, followed by the NASDAQ at -0.37%, and the S&P 500 at -0.79%.
• US jobs data for September showed nonfarm payrolls rising to 254,000, far exceeding the prior month’s numbers and consensus forecasts. This brought the unemployment rate down 0.1% to 4.1% and eased concerns around the labor market. US stock futures were up following the release of the data.
• Oil prices surged 5% on Thursday, on track for a weekly gain of 9%, marking the strongest weekly increase in over a year. This comes as investors fear that escalating conflict in the Middle East region could disrupt oil supply.

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 Mover Portfolio delivered an 11.9% return this week, placing it in the "Neutral" category. This performance was fairly muted, ranking in only the 10th percentile for the trailing-twelve months and the 41st percentile since inception.
• Factors accounted for 10.7% of the total return, landing in the “Very Alpha-Driven” category. This factor return lands in the 6th percentile from trailing-twelve months and 7th percentile since inception.
• Despite the low volatility of the week, the extremely low level of factor volatility suggests there was ample opportunity for fundamental investors to benefit from alpha capture .

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme movers portfolio showed fare more volatility reaching a whopping 46.0% return, and landing in the “Very Volatile” category. This return was the highest we’ve seen in the trailing-twelve months and ranked in the 99th percentile since inception.
• This week was Very Factor-Driven as factors accounted for 64.2% of the total return. This level of factor return is the highest we’ve seen in both the trailing-twelve month and since inception periods.

US Extreme Movers Portfolio Exposures

• Energy surged this week as the top allocation in the US Extreme Movers portfolio, marking a significant shift from last week. The allocation jumped from -1% to 14%, placing it in the 92nd percentile for trailing-twelve-months. The primary driver of this increase was the ‘Oil, Gas & Consumable Fuels’ industry, which contributed 13% on its own.
• Materials ranked as the second most represented sector this week with an 8% allocation, placing in the 98th percentile over the trailing-twelve months. The ‘Chemicals’ industry was the most significant as it accounted for 6% of the total allocation alone.
• Information Technology experienced a significant shift this week, dropping from the most represented sector to the least represented, with a short allocation of 11%. The primary contributors to this short position were ‘Software’ and ‘Semiconductors & Semiconductor Equipment’ industries, at -8% and -4%, respectively.

• Beta and Volatility factors fell out of favor this week, driven largely by the short book. The short allocation to ‘Information Technology’ was a significant driver of the low exposures across all factors in this category, with each landing near the 30th percentile for both TTM and ITD.
• The short allocation to the Information Technology sector also led to an aversion to Growth factors. Axioma’s Growth exposure dropped to -0.13, placing it in the 33rd percentile since the portfolio's inception.
• Conversely, Value factors were in favor this week, with both the long and short books contributing to this allocation, though the short book had a greater impact. This suggests that investors were primarily shorting companies with low exposure to Value factors. Wolfe’s Dividend Yield exposure neared the top decile since inception, primarily driven by a long allocation to the Industrials sector and a short allocation to Information Technology.
• Macro factors also saw elevated exposures this week, particularly Oil Beta, which reached the 96th percentile for trailing-twelve months. Nearly half of this exposure came from the long allocation to the ‘Oil, Gas & Consumable Fuels’ industry.

International Extreme Movers Portfolio Exposures

• For the International Extreme Movers portfolio, the ‘Consumer Discretionary’ sector rose as the most represented sector at 8%. This allocation placed this sector in the 88th percentile for trailing-twelve months and 84th percentile since inception.
• In contrast to the US portfolio, ‘Information Technology’ was the second most represented sector for the International Portfolio. ‘Semiconductors and Semiconductor Equipment’ was the most represented industry within this sector which contributed by half of the total exposure alone.
• Industrials became the least represented sector this week, with a -15% allocation, placing it in the lowest percentile for trailing-twelve months and the second percentile since inception. All industries, except for 'Air Freight & Logistics' and 'Machinery,' contributed to the negative allocation in this sector

• Long allocations to the ‘Consumer Discretionary’ and ‘Information Technology’ sectors favored Beta and Volatility factors. Barra’s Residual Volatility was notably high at 0.72, positioning it in the 96th percentile for both inception to date and trailing-twelve months.
• Growth factors were mixed this week. Axioma’s Growth was notably low as it placed in the 12th percentile for trailing-twelve months. Barra’s Growth on the other hand ranked high as it placed in the 96th percentile on a trailing-twelve month basis.
• All Quality factors, except for Barra’s Profitability, ranked low this week. The negative exposure in Earnings Quality was driven by the short book of the portfolio, while Axioma’s Profitability and Investment Quality exposure were influenced by the long book.
• Crowding factors were mixed this week. Short Interest was notably high, landing in the 99th and 98th percentiles for trailing-twelve months and inception to date respectively. This exposure came from the short book, particularly within the Financials and Industrials sectors. In contrast, HF Crowding ranked low, placing in the 9th percentile for trailing-twelve months, with most of this exposure coming from the long book of the portfolio.

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.

• Emerging markets remained highly favored this week, with a 37% long allocation, placing in the 91st percentile since inception. Developed Markets had a short allocation of -36%, landing in the 7th percentile since inception.
• Within Emerging Markets, Asia remained the most represented region, driven primarily by China, which had a 95% allocation—the highest the portfolio has ever seen.
• In Developed Markets, Europe and the Middle East were the main drivers of the short allocation at -29%. France, Sweden, and Denmark were the primary contributors to this allocation, at -7%, -5%, and -5%, respectively.

Regards,

Jose