“Tariff-ied” Markets

Market Summary

US Market: 2/28/2025 - 3/06/2025

• U.S. headline indices suffered their worst week since September. The S&P 500 shed -2.0%, the NASDAQ shed -1.89%, and the Dow Jones shed -1.57%.
• On March 3, President Donald Trump announced that 25% tariffs on imports from Canada and Mexico would take effect on March 4, with no further room for negotiation. Additionally, existing tariffs on Chinese imports were increased from 10% to 20%. These measures weighed heavily on risk sentiment as investors were already nervous about a shaky economic backdrop, high interest rates, and sticky inflation.
• The U.S. unemployment rate ticked up to 4.1% in February as the economy added 151,000 jobs, falling short of expectations. While job growth continued in sectors like healthcare and finance, the rise in part-time employment suggests potential economic softening. .
• In a press conference Friday, Fed Chair Jerome Powell signaled for no immediate rate cuts, stating the central bank will wait for clearer economic signals. While citing moderating consumer spending and heightened business uncertainty, he stated it is too soon to know if these developments would slow the economy.
• In an expected move, the ECB cut rates again whilst signaling the easing phase is nearing its end. This decision comes amid heightened economic uncertainty, including trade tensions and increased fiscal spending plans in Europe.

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 a 20.3% return this week, ranking in the 88th percentile for both trailing twelve months and since inception. This level of performance marks the week as being “Very Volatile”.
• Factors accounted for 22.4% of the total return, placing the portfolio in the “Neutral” category. This ranks in the 49th percentile for the trailing twelve months and the 45th percentile since inception.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio earned a 18.9% return, placing it in the "Very Volatile" category for the week. This return ranks in the 86th percentile over the trailing twelve months and the 82nd since inception.
• Factors accounted for 26.4% of the total return, which classifies as "Neutral". This level of factor return is in the 55th percentile for the portfolio over the trailing twelve months and the 48th since inception.

US Extreme Movers Portfolio Exposures

• The Real Estate sector led the US portfolio this week with a 17% allocation, ranking in the top percentile for the trailing twelve months and the 96th percentile since inception. All industries within the sector contributed positively, and Specialized REITs was the largest contributor at 5%.
• Financials followed close behind with a 16% allocation which was in the top quintile for the trailing twelve months and since inception. Insurance was the most represented industry within this sector, garnering a 13% allocation.
• Consumer Discretionary had the lowest representation, with a -17% allocation, ranking in the 13th percentile for the trailing twelve months and the 9th percentile since inception. This negative allocation was primarily driven by a 10% short on the Semiconductors & Semiconductor Equipment sector.

• Beta and Volatility factors were again out of favor this week, with three of the five factors ranking in the bottom decile for both the trailing twelve months and since inception. The low exposure for Wolfe’s Volatility factor was driven by the short book, for Axioma’s Market Sensitivity and Barra’s Beta factor, the low exposure was driven by the Information Technology short in the portfolio. All three indicate a continued move out of high vol names by US investors.
• Quality factors were mixed this week. Management Quality and Earnings Quality were above or near the top quartile over the past year and since inception. Contribution to this exposure was balanced across the portfolio for Management Quality, but Earnings Quality was driven by large short exposure, particularly from the Energy sector. In contrast, Axioma’s profitability factor was in the 6th percentile for the trailing twelve months and the 17th since inception and driven by the long book.
• Wolfe’s HF Crowding Factor stood out this week, ranking in the 4th percentile over the trailing twelve months and the 7th since inception. The negative exposure was derived from the short book, the Consumer Discretionary short especially, indicating that investors sold out of commonly held hedge fund long positions.

International Extreme Movers Portfolio Exposures

• Industrials was the most represented sector in the International Portfolio this week, with an 18% allocation, ranking in the 99th percentile for both the trailing twelve months and since inception. Aerospace & Defense led within the sector, contributing 12%.
• Consumer Staples had the second largest allocation within the portfolio, with an 8% allocation, ranking in the 94th percentile for the trailing twelve months and the 88th percentile since inception. Industry contribution was balanced within the sector as Food Products had the highest allocation at 2.5%.
• Information Technology was the least represented sector this week at -21%. This was the sector’s lowest allocation over the trailing twelve months and ranked in just the 1st percentile since inception. The negative allocation was driven by Semiconductors & Semiconductor Equipment (-9%).

• Beta and Volatility factors were down this week. All factors in the category were negative and Barra’s Residual Volatility, a common proxy for risk aversion, stood out with the lowest exposure. The factor placed in the 22nd percentile over the trailing twelve months and the 17th since inception. The negative exposure was driven by the portfolio’s short Information Technology position, indicating that investors were selling tech names with high exposure to the factor as they adopt a more cautious approach.
• Value factors had a decidedly neutral performance this week. All factors in the category placed within or just above the middle quintile of exposure over the trailing twelve months.
• There was significant dispersion within Growth factors as Axioma’s Growth had a strong week, placing in the 82nd percentile over the trailing twelve months, while Barra’s Growth factor placed in the 35th percentile since inception. Axioma Growth was driven by the short book and long names in the Financials sector, suggesting that investors were selling names with low exposure to the factor generally but buying Financials stocks with high exposure to the factor. The negative exposure to Barra Growth was driven by the Short Book, most notably tech shorts, as investors sold tech names with high exposure to Barra’s Growth factor.

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.

• Developed Markets remained strong this week with a 24% allocation, ranking in the 76th percentile for the trailing twelve months and the 79th since inception. Emerging Markets had a -20% allocation, placing in the 14th percentile for the trailing twelve months and the 15th percentile since inception.
• Within Developed markets, Europe was again the main contributor, representing 23% of the allocation. This was in the 94th percentile for the trailing twelve months, and the 84th since inception. Germany and France were the most represented countries in the region accounting for 10% and 9% of the portfolio respectively.
• Within Emerging Markets, Asia had the most negative allocation at -29%, which was in the bottom decile for the region over the past year and since inception. Korea was the primary driver of this negative allocation at -18%.

Regards,

Colin