Tech En Vogue Despite Dark Economic Clouds

With most US markets closed tomorrow in observance of Presidents’ Day, the Omega Point team and I hope many of you can take a much-needed breather to enjoy a long, relaxing weekend with your families and loved ones.

We'd also like to note that starting with today's issue and going forward, you can find the Extreme Movers definitions on a new page in Factor University on our website. We plan to add plenty of exciting content to Factor University in the coming weeks and months and encourage you to keep checking back as our library of educational content continues to expand.

Market Summary

US Market: 2/10/2023 - 2/16/2023

• It was a neutral week in the end for major US headline indices. The Nasdaq led the way, returning 0.6%, while the S&P and Dow trailed at 0.2% and -0.01%, respectively.
• The January CPI release showed a 0.5% rise in inflation, representing a 6.4% year-over-year increase. Markets had a minimal reaction to the news on Tuesday.
• Retail sales grew by 3% in January, well above the Dow Jones estimate of 1.9%. Several Fed representatives have publicly entertained the idea of a 50 basis point rate hike at the January meeting. Markets took a hit on Thursday in response.

Extreme Movers Portfolio Performance

US Extreme Movers Volatility and Factor-Driven Speedometers

• The US Extreme Movers portfolio returned 15.4% this week, which, like last week, falls in the second quintile of historical returns, classifying it as "Volatile."
• "Volatile" and "Alpha-Driven" weeks have been a rarity, but this week marks the second in a row as alpha accounted for more than 85% of the portfolio's return.
• A higher level of volatility coinciding with an "Alpha-Driven" market provides fundamental investors with a favorable stock-picking market, given that stock prices are moving considerably and driven by stock-specific forces rather than systematic market forces.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio was calmer in both categories this week. The portfolio return (15.5%) places it in neutral territory regarding market volatility.
• Alpha drove 74% of the return and barely snuck it into the "Alpha-Driven" category, which is still a favorable environment for fundamental stock-pickers.

US Extreme Movers Portfolio Exposures

• The US Extreme Movers Portfolio showed significant sector concentration this week, with a 29% allocation to Information Technology in the long book and a -16% allocation to Health Care in the short book. Consequently, Information Technology and Health Care sectors attained 95% and 9% Inception-to-Date percentiles, respectively.
• All industries within the Information Technology sector had a long allocation in the book, with Software representing almost two-thirds of the total allocation.
• The Health Care short allocation resulted primarily from the Health Care Equipment & Supplies Industry, contributing 9.3% to the total -16% allocation. In contrast, Health Care Providers & Services and Health Care Technology contributed to the long side of the book.

• The portfolio favored high-beta, high-volatility names, with exposure to both volatility and beta ranking in the top quartile Inception-to-Date in Wolfe and Barra risk models.
• The portfolio's bias towards high-growth names and against low-growth names translated into a top-quintile Inception-to-Date exposure to Growth, while long positions in anti-value names within the Information Technology and Consumer Discretionary sectors mainly drove the portfolio's negative exposure to Value.
• Short positions in crowded names put pressure on the Hedge Fund's short books, with popular short ideas such as QS and APP delivering positive returns of over 30% throughout the week.

International Extreme Movers Portfolio Exposures

• Unlike its US counterpart, the International Extreme Movers Portfolio did not display significant allocations to any individual sector, with no allocation surpassing the +/- 10% threshold.
• The portfolio's top allocation was Financials, with the 9% allocation in the long book mainly driven by Israeli and Turkish Banks.
• South African, Australian, and South Korean Metals & Mining stocks drove the short allocation in the Materials sector.
• Information Technology exhibited a negative allocation, with the most considerable portion of the short book consisting of Asian Info Tech stocks in Japan, Taiwan, South Korea, and Hong Kong.

• The International Extreme Movers Portfolio continued to favor low-beta names and avoid high-beta names, following last week's trend.
• The portfolio's bias toward popular long ideas in Turkey and against unpopular long ideas in South Korea, Japan, and Hong Kong resulted in an 86th percentile Inception-to-Date exposure to HF Crowding.
• The short book in the portfolio led to a high-Interest Rate Beta Exposure, with notable contributions from the Materials, Consumer Discretionary, and Health Care sectors.

Regards,
David