Tech Stocks Lead a Strong Close to November

Market Summary

US Market: 11/24/2023 - 11/30/2023

• The Dow Jones Industrial Average led US headline indices this week with a return of 1.9% over the five trading days ending Thursday. The S&P 500 followed at 0.3% while the Nasdaq fell into the red, returning -0.3%.
• The Nasdaq wrapped up its strongest month since July of 2022, up just shy of 11%. The rally was largely fueled by lower bond yields and slowing inflation, culminating in a growing consensus that rate hikes are over and cuts could be a possibility from the Fed in the coming year.
• OPEC+ agreed Thursday to a voluntary production cut of approximately 700,000 barrels per day in order to protect against further drops in price. Despite the news, Crude Oil prices fell 2.7% during Thursday’s trading due to a lack of clarity around the voluntary nature of the cuts.

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 returned 13.1% this week, which fell in the 22nd percentile on a trailing-twelve-month basis and the 53rd percentile since inception. That since inception percentile categorizes this week’s volatility as “neutral”.
• Factors contributed to 29.4% of the portfolio's volatility. This level of factor contribution stands at the 73rd percentile TTM and classifies as “Factor-Driven”. Style accounted for over 60% of the total factor volatility.
• The Market Intercept factor, which measures the general market trend or average around which the style and industry factors revolve, slowed this week but remained positive at 0.42% through Wednesday’s close.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio returned of 14.6% this week, placing it in the 51st percentile over the trailing twelve months and the 47th percentile since inception. Like last week, this week's volatility is classified as “Neutral".
• Factors accounted for 18.7% of this week’s return which is categorized as “Very Alpha-Driven”. That 18.7% marks just the 15th percentile since the portfolio’s inception in 2007.
• The Global Market factor finished the week ending Wednesday down three basis points which points to a directionally neutral week across the worldwide markets.

US Extreme Movers Portfolio Exposures

• Information Technology represented the top sector allocation this week, at 18%, followed by Financials at 14%, and Real Estate at 11%. These sector allocations landed in the top quintile since we started collecting data in 2007.
• Focusing on Information Technology, Software comprised 15% of the total 18% allocation, while Semiconductor & Semiconductor Equipment diversified the allocation with a short allocation of -1%.
• Real Estate saw its positive allocation coming from all its industries, led by Office REITs. Within Financial Services, all industries except for Insurance contributed to the positive allocation for the sector.
• Health Care experienced a significant shift from the prior week's extreme long allocation, now reflecting a robust negative allocation of -15%. The primary contributors to this short was Health Care Providers & Services.
• Communication Services and Consumer Staples landed in the bottom decile ITD. The negative allocation to Communication Services came from all its industries, while that of Consumer Staples came almost exclusively from Hotel, Restaurants & Leisure.

• The US Portfolio saw very elevated levels of Volatility and Beta, with most indicators reaching the top decile ITD. The positive exposures come from both sides of the book, implying that investors favored high-beta high-vol names, and fled away from low-beta low-vol ones.
• Growth landed close to neutral territory, while Value was mixed across its indicators, with a positive exposure to Dividend Yield, and a negative exposure to Earnings Yield. Both sides of the book contributed to each of these two style factor exposures.
• Quality factors saw very negative exposures, with Profitability’s in particular at the bottom decile ITD. The long side of the book was the sole contributor to Profitability, implying that investors piled on names with low indicators of profitability.
• Crowding factors saw long exposures across all the indicators, with Short Interest and ETF Flow landing in the top quintile ITD, primarily led by the long side of the book.

International Extreme Movers Portfolio Exposures

• Materials had the most significant sector exposure this week, at 8%, followed by Industrials and Information Technology, each with a 4% allocation.
• Within the Materials Sector, Metals & Mining accounted for over 5% of the total allocation, followed by Chemicals which represented roughly 3%.
• Unlike in the US portfolio, Real Estate in international markets fell in the short territory this week with a weight of -4%. Consumer Staples also fell in the short territory, at a weight of -5%. Beverages contributed the most to the short exposure to Consumer Staples, at -4%, followed by Food Products, at -1%.

• The International Portfolio remained underexposed to Volatility. Residual Volatility had an exposure of -0.31, landing in the bottom quartile ITD. The long side of the portfolio contributed positively to this exposure, but the short side contributed negatively to a greater extent. On the other hand, Beta factors saw a slight overexposure, at 0.12. The long side of the portfolio contributed negatively to it, and the short side contributed positively.
• Growth had a slight underexposure at -0.03 for Axioma and -0.04 for Barra. This underexposure came from the short book for the Barra model and from the long book for Axioma.
• For Value (Barra), the long side of the portfolio contributed the most to this allocation, while the short side had a negative contribution. For Dividend Yield both the short and the long book contributed negatively to the exposure.
• Quality Factors saw a very positive allocation for Profitability (Axioma) at 0.33, landing in the top decile ITD. The short side of the portfolio was the main contributor to this, implying that investors bet against companies with low profitability. Earnings Quality saw a neutral exposure, at 0.04, which landed at the 57th percentile ITD. Investment Quality was slightly underexposed, at -0.06, representing the bottom tercile since inception.

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 saw stronger positive market movements than Emerging Markets over the past two weeks. The current allocation to DM landed in the top quartile, while the allocation to EM landed in the bottom quintile.
• DM Europe & Middle East experienced a robust upward trend, positioning it in the top quintile ITD. The UK, Sweden, and Denmark took the lead in the allocation, contributing 6%, 3%, and 2%, respectively.
• EM Asia led the negative allocation to Emerging Markets, with its -29% reaching the bottom decile ITD. China alone saw a massive -46% allocation, which represents the lowest level in the TTM period, and the 1st percentile ITD. On the flipside, India and Taiwan contributed positively to the geography’s allocation, with weights of 8% and 6%, respectively.

Regards,
Jose