Tech Soars in Anticipation of Annual Fed Conference

Market Summary

US Market: 8/16/2024 - 8/22/2024

• US headline indices were positive again this week. The S&P 500 led the way with a 0.49% return while the Dow and Nasdaq followed at 0.37% and 0.14%, respectively.
• The US Bureau of Labor Statistics provided the largest downward revision on non-farm payroll growth since 2009. It was originally reported that the US economy had added 2.9 million jobs over the twelve months ending March 2024. However, the BLS found that that number was overstated by approximately 810,000.
• At the Fed retreat in Jackson Hole on Friday, Chairman Jerome Powell said “the time has come for policy to adjust” in regards to rate cuts. All headline indices spiked in Friday morning’s trading session. The Russell 2000 climbed by nearly 3.5%.

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 saw a return of 13.1% this week which moved it into the “Neutral” category or volatility. This places this week in the 52nd percentile since inception.
• Factor contributions were also categorized as “Neutral” as they accounted for 26.1% of the portfolio’s return. That level marks the 57th percentile on both a trailing-twelve-month and inception-to-date basis.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme movers portfolio also pointed to “Neutral” levels of volatility. The portfolio returned 14.3% which falls in the 43rd percentile since inception.
• To round out the “Neutral” week, factors contributed 25.2% of the international portfolio’s performance. That contribution landed in the 42nd percentile since inception.

US Extreme Movers Portfolio Exposures

• Information Technology remained at the top of the portfolio this week with a 28% long allocation. This places the sector in the 95th percentile since inception. All industries contributed positively to the allocation, with Semiconductors & Semiconductor Equipment in the lead at 11%, followed by Software at 7%.
• Consumer Discretionary and Communication Services also saw strong allocations this week, with both placing in the top decile over the trailing-twelve-months. Consumer Discretionary was driven overwhelmingly by Specialty Retail and Textiles, Apparel, and Luxury Goods. Communication Services was driven by Entertainment and Interactive Media & Services.
• Energy was the least favored sector this week with a short 18% allocation that placed in just the 9th percentile over the trailing-twelve-months. This was driven mostly by Oil, Gas & Consumable Fuels with a -14% allocation.
• Financials also dropped to the bottom after being the second most favored sector last week. The short 13% allocation placed in the 5th percentile TTM and was driven by Capital Markets at -9% and Insurance at -4%.

• Beta and Volatility stayed elevated this week, as investors continued their risk-on positioning. All factors except Axioma’s volatility factor reached exposures in the top decile both TTM and since inception. Beta was driven mainly by the long book, though the short book also had positive exposure, indicating that investors bought high-beta names and sold low-beta names. Volatility was driven by the long book as well, with investors favoring riskier names.
• Value fell further out of favor as investors bet against cheap stocks, with Dividend Yield factors reaching close to their lowest point in the last 12 months and since inception. Exposures were negative on both sides of the book with Energy, Financials, and Information Technology being the main sector drivers.
• Quality was also out of favor with Wolfe’s Profitability factor reaching the bottom decile TTM and ITD. This was driven by the long book, particularly by names in the Communications Services, Tech, and Consumer Discretionary sectors.
• HF Crowding was positive, reaching the 88th percentile TTM as investors bought popular longs. Short Interest was also positive, reaching the 77th percentile TTM as investors both bought popular shorts and sold unpopular shorts.

International Extreme Movers Portfolio Exposures

• The allocation to Financials in the International portfolio rose to 16% this week, reaching the 93rd percentile over the trailing-twelve-month period. Banks and Insurance were the main drivers, with allocations of 8% and 4% respectively.
• Materials jumped from last week’s -10% allocation to a long 10% allocation that made it the second most favored sector and placed in the 91st percentile TTM. This was driven almost entirely by Metals & Mining, particularly within Canada and India.
• Consumer Staples dropped to -14% this week, marking the lowest allocation the sector has seen in the last 12 months and ranking in just the 2nd percentile since the inception of the portfolio. Food Products was the major driver at -7%, followed by Beverages at -4%.

• Beta factors pushed higher this week, while Volatility factors remained low, but to a lesser degree. while Beta and Market Sensitivity were high. Beta was driven primarily by the short book as investors bet against names with low beta exposure. Volatility was also driven by the short book as investors bet against riskier names.
• Growth was in favor this week, with Axioma’s growth factor reaching the 91st percentile TTM, as investors favored high-growth names and shorted low-growth names. Value factors were out of favor, with Axioma’s Dividend Yield factor reaching the 10th percentile since inception. This came as investors shorted high dividend-yielding names, particularly in Real Estate, Utilities, and Health Care.
• Crowding and Short Interest factors stayed low this week, with both landing below the 30th percentile TTM. The low HF Crowding exposure was primarily driven by long positions in Tech, Consumer Discretionary, and Health Care, while the low Short Interest exposures were driven by long positions in Financials, Materials, and Tech.

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.

• Developed Markets were in favor again in the International Extreme Movers Portfolio, receiving a 24% long allocation that places in the 80th percentile on a trailing twelve-month basis. In contrast, Emerging Markets saw a short allocation of -24%, landing in just the 12th percentile for the same period.
• The DM allocation continued to be driven by the Pacific region, with a 15% long allocation. Japan drove this with a 16% allocation making it the largest contributor in the region and placing in the 89th percentile over the TTM period.
• Within EM, Asia had the largest representation, with a short allocation of -14%. China was the main contributor, accounting for a -33% allocation that placed in only the 5th percentile since inception. The Americas region also saw particularly low exposures at -10%. This was driven by Mexico’s -6% allocation, which placed in the 4th percentile TTM and 3rd percentile since inception.

Regards,
Jose