Tech Titans Propel Markets with Earnings and AI-Fueled Growth

Market Summary

US Market: 4/19/2024 - 4/25/2024

• US headline indices had positive returns over the last five trading days ending Thursday. The Dow led the way with a 1.81% increase, followed by the S&P 500, which rose by 1.21%. The Nasdaq also saw gains, climbing 0.71%.
• The Japanese Yen plunged to its lowest point in 34 years, prompting speculation about potential intervention by the Japanese government to strengthen the currency. Meanwhile, in the US, the possibility of maintaining elevated interest rates remains high following weaker-than-anticipated GDP figures.
• Stock futures surged after tech giants Microsoft and Google reported impressive earnings. Both companies saw significant revenue growth in their cloud services, fueled by their strategic use of AI technologies. This upbeat sentiment spilled over into European markets, particularly benefiting technology stocks.

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 14.3% which categorizes this week as “Volatile”. That return falls in the 62nd percentile since inception and the 43rd percentile on a trailing twelve month bases .
• Factors accounted for 22.4% of the portfolio’s return this week which lands in the “Neutral” territory. This contribution marks the 45th percentile of all weeks since inception.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio saw a return of 16.7% earning the “Volatile” classification. That return places the week in the 85th percentile over the trailing twelve months.
• Factor returns accounted for 25.3% of the total, landing in the 50th percentile for tailing twelve months and earning the “Neutral” classification.

US Extreme Movers Portfolio Exposures

• The US portfolio saw a big push into Financials this week, with the sector accounting for a 32% long allocation that placed in the 98th percentile since inception. All industries were positive, but Banks led the sector with a 19% allocation, which was by far the largest industry allocation in the portfolio this week.
• Materials and Industrials were at the low end of the portfolio, with short allocations of 13% and 14% respectively that ranked in the bottom decile since inception. Metals & Mining drove the Materials position with an 8% short allocation, while Ground Transportation drove industrials at -6%.
• Information Technology was once again at the low end of the allocations with a 13% short that landed in the bottom quintile since inception and bottom quartile over the trailing twelve months. Semiconductors & Semiconductor Equipment drove the allocation this week at -7%.

• Beta and Volatility factors were slightly negative this week as investors favored “risk-off” stocks with lower beta and lower residual volatility. The low beta and low volatility exposures largely came from the short allocation to Industrials.
• Growth was out of favor, landing in the bottom quintile since inception, while Value was strongly in favor with exposures largely landing in the top decile since inception. Both exposures were generally driven by the long book, suggesting that investors bought low-growth stocks and high value stocks.
• Interest Rate Beta exposure increased for a second week with the strong tilt into Interest Rate Beta, while Oil Beta fell to neutral territory.
• Hedge Fund Crowding was at a low, with a negative exposure placing in the 8th percentile over the trailing twelve months. This was driven by investors shorting crowded names.

International Extreme Movers Portfolio Exposures

• Similar to the US portfolio, Financials led the long side of the portfolio, driven by Banks at 8%. The sector allocation landed in the 95th percentile on a trailing twelve month (TTM) basis.
• Metals & Mining was the largest magnitude industry allocation of the week, with a short 12% that put the Materials sector in the lowest position it has seen TTM, and just the 5th percentile since inception. Stocks in South Africa were the largest contributors.
• Information Technology was also down, ranking in just the 7th percentile since inception. In line with the US market, Semiconductors & Semiconductor Equipment stocks overwhelmingly drove the sector with an 11% short allocation .
• Unlike in the US, Industrials were in favor across international markets, placing in the top quintile both TTM and since inception. Transportation stocks accounted for more than half of the 9% long allocation.

• Beta and Volatility factors were both in favor as international investors had an increased appetite for risk.
• Value factors were again positive this week, while Growth factors were mixed, indicating that investors had a preference for buying higher-value stocks and avoided high growth names without a reasonable price.
• Profitability and Earnings Quality factors were strongly out of favor, with all factors landing in the bottom decile TTM and bottom quintile since inception. This was largely driven by the portfolio’s long exposures to low-profitability, low-quality names in the Financials sector.
• Wolfe’s HF Crowding factor was moderately positive while Short Interest was negative. The long HF Crowding was driven by the short side of the portfolio, suggesting that hedge fund managers shorted less crowded names this week while also buying names with low short interest.

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.

• Investors favored Developed Markets relative to Emerging Markets this week as DM accounted for a 9% long allocation. The moderate 9% allocation reached the 59th percentile since inception.
• The Pacific region led the DM allocation, with Hong Kong and Singapore both reaching positions that ranked at the 100th percentile on a trailing twelve month basis.
• EMEA was the largest contributing region to the negative EM allocation. Saudi Arabian stocks and South African Materials stocks accounted for a significant portion of the region’s -13% allocation.
• In sharp contrast to last week, South Korea’s positioning in the EM book was strongly positive, with a 25% long allocation that was the largest country allocation in the portfolio by far. This placed in the 99th percentile since inception, and was driven largely by Industrials and Financials stocks.

Regards,
Reshma