TMT Stocks Put an End to Market’s Winning Streak

Market Summary

US Market: 6/16/2023 - 6/22/2023

• US markets ended a three-week winning streak as the Dow dropped 1.3%. The Nasdaq and S&P followed at -1.1% and -1.0%, respectively.
• Jerome Powell made clear on Wednesday that the Federal Reserve is not done raising rates given that we have “a long way to go” in bringing inflation back down to comfortable levels.
• Citing a strong labor market, Treasury Secretary Janet Yellen noted that she sees the likelihood of recession diminishing, though, with continued rate hikes, admitted that a slow-down in the economy is still very much on the table.

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 return quieted this week. The 12.2% return landed in the third quartile since inception which marked the first “Neutral” week of volatility since mid-April.
• Coming off of one of the most factor-driven weeks since inception, factors also calmed this week. 25% of the portfolio’s return was attributable to factors, which lands in the 53rd percentile since inception.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio achieved a return of 14.5%, placing it in the 46th percentile among weekly returns and categorizing this week as "Neutral".
• Factors only accounted for 19% of the portfolio’s return which means that the vast majority of asset volatility in international markets was the result of idiosyncratic alpha. Factor contribution fell in the 15th percentile of all weeks since inception.

US Extreme Movers Portfolio Exposures

• The sector composition of the US portfolio swung again this week, with Information Technology accounting for a 39% net short allocation that placed in the 2nd percentile since inception. Semiconductors and Software were the key industry drivers at -17% and -16% allocations, respectively.
• Industrials led the portfolio at a 29% net long allocation, which was the highest allocation since the portfolio inception. The allocation was spread across several industries but led by Building Products at 8% and Professional Services at 6%.
• The long allocation to Health Care and short allocation to Communication Services were among other week-over-week swings, landing in their top and bottom quintiles over the trailing twelve months. The majority of the Communication Services swing was due to Media and Entertainment.

• Beta and Volatility exposures indicated a “risk off” positioning in the US this week, for the first time since the beginning of May. All Beta and Volatility factors landed well into their bottom quintiles since inception.
• The significant repositioning away from Tech caused Value and Quality to be back in favor, with Earnings Yield factors landing in their top quintiles since inception, and Profitability factors landing well into their top deciles since inception.
• Sector rotations from the week resulted in Oil Beta returning to positive exposures, while Interest Rate Beta remained moderately negative.
• The US portfolio continued to be slightly net long on popular hedge fund longs this week and was heavily short popular hedge fund shorts, which was likely advantageous for hedge fund managers.

International Extreme Movers Portfolio Exposures

• The International sectors diverged from the US this week, with Financials leading the portfolio at an 8% allocation consisting overwhelmingly of Banks. Utilities also led the portfolio with a strong 5% allocation that was driven by Electric Utilities in Brazil, China, and Hong Kong and landed in the 85th percentile since inception.
• Materials had the largest short allocation at -14%, which put it in the 3rd percentile over the trailing twelve months. This was due largely by Metals & Mining in South Africa and Turkey, as well as Chemicals in Switzerland and Belgium.
• Health Care stayed at the bottom of the portfolio this week with a 7% short allocation that was driven by Life Sciences and Healthcare Equipment & Supplies, most notably in Hong Kong and Switzerland.
• Similar to the US, the downturn in Communication Services was led by Entertainment and Interactive Media, with a -3% allocation that landed in the bottom decile since inception. Allocations to the US, South Korea, and Japan were the key drivers.

• The International portfolio was against Volatility and strongly against Beta this week, which was consistent with the “risk off” positioning in the US market.
• Growth continued to be moderately in favor, while Value returned to a strong positive allocation due largely to the portfolio’s positioning towards Financials and away from Health Care.
• Oil and Interest Rate-sensitive stocks were strongly in favor over stocks that have inverse relationships with Oil and Rates, with positive allocations that landed in the top decile over the trailing twelve months.
• The International portfolio was long popular hedge fund longs this week and was short names that are less popular hedge fund 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.

• The International Extreme Movers portfolio favored Emerging Markets this week as the 8% long allocation to EM landed in the 58th percentile since inception.
• India accounted for a majority of the allocation with a 12% allocation that put in the 99th percentile since inception, followed by Brazil with a 9% allocation that landed in the 87% percentile since inception. This was balanced out by the Europe, Middle East, & Africa region, which was largely out of favor.
• Developed Markets had a -8% allocation this week that was similarly driven by the Europe & Middle East region.

Regards,
Reshma

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