Tech Stocks Bolster US Indices

Market Summary

US Market: 1/12/2024 - 1/18/2024

• The US headline indices had mixed performance over the five trading days ending January 18th, with the Nasdaq returning just shy of 1% thanks to a mid-week rally in big tech names that surged the index to a new record high. The S&P 500 followed at 0.21%, while the Dow stayed in the red at -0.64%.
• The US consumer sentiment in January 2024 has soared to the highest level since 2021 exceeding investors’ expectations, amid optimism that inflation has turned a corner and strong expectations around household incomes.
• China continues to struggle with market selloffs this year, with it’s largest brokerage suspending short selling for some clients in the mainland. The state-owned brokerage reportedly made the decision on guidance from regulators.

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 remained in “Volatile” territory this week with a return of 16.2%. That return falls in the 74th percentile since inception.
• Factor contribution dropped slightly this week as they accounted for 28.8% of the portfolio’s total return. That return places this week in the 66th percentile since inception and is categorized as “Factor-Driven”.
• Markets that are classified as both “Volatile” and “Factor-Driven” can present challenges for fundamental managers focused on driving alpha.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio also stayed in “Volatile” territory with a return of 15.8%. That volatility level lands in the 75th percentile over the trailing-twelve months.
• Factors have continued to drive the portfolio, contributing 32.8% of the portfolio’s return which earns a “Factor-Driven” categorization. The 32.8% contribution was in the 78th percentile on a trailing-twelve-month basis.
• Weeks that are both “Volatile” and “Factor-Driven” can present challenges for fundamental managers focused on driving alpha.

US Extreme Movers Portfolio Exposures

• Information Technology saw the biggest allocation this week with 23% landing in the top decile since inception. All industries within the sector had a long allocation this week. Software alone accounted for almost two thirds of the total allocation.
• Consumer Staples landed in the top decile on a trailing-twelve-month basis having a total allocation of 7%. Food Products and Consumer Staples Distribution & Retail were the most represented industries accounting for a total of 6% of the total allocation together.
• Industrials saw the lowest share this week landing in the lowest decile TTM and ITD. Electrical Equipment and Passenger Airlines were the most shorted industries in the sector accounting for -8% of the total allocation.

• The U.S. portfolio exhibited notably low exposures to beta and volatility factors, with all ranking in the bottom decile TTM. This indicates that investors prefer not to invest in volatile names and are instead investing in names with more stability.
• Growth saw very positive exposures this week for Barra and Axioma, with both landing in the top decile TTM. Both the long and the short portion of the portfolio contributed to this positive exposure. This indicates that investors are selling low growth names and favoring high growth names.
• Quality saw extremely high exposures this week especially for Earnings Quality (Barra) and Profitability (Axioma), which both received their highest levels for the (TTM). Both the long and short sides of the portfolio contributed to this exposure, but the short side had a significantly greater impact. This indicates that investors were selling low quality stocks.
• Short interest recorded one of its lowest levels ITD. This indicates that investors favored names that were not heavily shorted, and continues to short names with high exposure to short interest.

International Extreme Movers Portfolio Exposures

• Financials saw the largest representation in this week’s International Extreme Movers portfolio. All industries within the sector had long allocations in the book, with Banks leading at 5.3%.
• Materials repeated the -13% weight it saw last week, placing at the 4th percentile TTM. Chemicals alone accounted for 7.2% of the allocation.
• Real Estate landed in the bottom decile both on an ITD and a TTM basis. Real Estate Management & Development accounted for 100% of the positioning to the sector.

• The International portfolio continued its anti-vol and anti-beta trend with greater force. All Beta and Volatility factors landed in the bottom decile ITD. The Beta exposure was driven exclusively by the long book and the Volatility exposure exclusively by the short book. This implies that investors favored low beta names and fled away from highly volatile ones.
• Positioning to Growth was mixed across models, while Value was mainly positive, as Dividend and Earnings Yield landed in the top quintile ITD per most of their indicators, driven exclusively by the short side of the book.
• Exposure to Interest Rate Beta continued high, landing in the top quintile ITD, coming from both sides of the book, implying that investor favored securities with positive relationship to interest rates while trimming names with negative relationship to rates.
• The portfolio saw exposures to HF Crowding and Short Interest in the top decile TTM coming exclusively from the short book. This implies that investors fled away from unpopular longs but also from unpopular shorts.

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 outweighed Emerging Markets once more. With its 17% long allocation, DM landed in the 68th percentile TTM, while EM landed in the 19th percentile TTM.
• The Pacific led the charge in Developed Markets, as Japan alone accounted for 23% of the total allocation of the portfolio, continuing with the trend observed last week which saw 25% allocation to Japan.
• Short positions in China remained but at a lesser degree than what was observed last week, representing -26% of the portfolio. South Korea also saw strong headwinds, at a 17% allocation which represents the 3rd and 4th percentile on a TTM and ITD basis, respectively.

Regards,
Jose