US and International Investors Remain Cautious Amid Week of Low Returns

Market Summary

US Market: 6/21/2024 - 6/27/2024

• U.S. major stock indices rose this week, led by the Nasdaq, which gained 0.77% over the past five trading days. The S&P 500 followed with a 0.18% increase, while the Dow Jones Industrial Average saw a modest rise of 0.07%.
• U.S. stock futures rise as data suggests Federal Reserve rate cuts are likely to happen this year. Treasuries remain stable, and the dollar hovers near eight-month highs as investors await the PCE inflation data.
• The presidential debate raised concerns about Biden's age, prompting some Democrats to question his candidacy. Trump, meanwhile, made false and exaggerated claims and refused to accept the previous election's outcome. The perception that Trump won the debate provided a slight boost to the dollar.
• Yen traders are closely monitoring the PCE data as the yen reaches levels against the USD not seen since 1986, sparking speculation of potential Japanese market intervention. Japan's Topix stock index has surged to its highest level since 1990, driven by improved shareholder returns as the weak yen is helping exporters.

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

• US market volatility continued to decline this week, with the US Extreme Movers portfolio achieving a 10.6% return. This week’s performance is classified as “Calm”, ranking in the 4th percentile on a trailing-twelve-month basis (TTM) and on the 30th percentile since inception.
• Factor returns this week had low impact, contributing by 16.7% to the total return. This performance falls in the "Alpha Driven" category, placing it in the 29th percentile on a trailing twelve-month basis and the 25th percentile since inception.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio also experienced reduced volatility, achieving a return of 12.3%. This performance is categorized as "Very Calm," placing it in the 2nd percentile for the trailing-twelve-months (TTM) and in the 19th percentile since its inception.
• Factor returns were notably low this week, contributing only by 19.3% to the total return and falling into the "Very Alpha Driven" classification. This factor contribution ranks in the 17th percentile since inception.

US Extreme Movers Portfolio Exposures

• Communications Services drove a 13% long allocation in the US Extreme Movers portfolio this week. This is the highest positioning that has been seen over the trailing-twelve-month (TTM) and was driven largely by Media.
• Energy also saw a boost this week with a 10% allocation that landed in the 84th percentile on a TTM basis. This was driven by both Oil, Gas & Consumable Fuels as well as Energy Equipment & Services.
• Industrials fell to its 8th percentile since inception and 6th percentile on a TTM basis with a 12% short allocation. Building Products and Electrical Equipment combined accounted for 11% of the positioning.
• Real Estate also fell to the bottom of the portfolio this week, reaching the 9th percentile TTM. This was driven by Real Estate Management & Development.

• Risk appetite was mixed in the US this week as investors continued to sell beta but took on exposures to residual volatility factors to a strong degree. Exposures to Barra’s Residual Volatility factor reached the 96th percentile over the trailing twelve months.
• US investors still favored value, though to a lesser degree than the week prior, and growth factors took preference over quality. Exposure to Axioma’s Growth factor reached its 90th percentile level since inception, while most quality factors fell below the 50th percentile.
• Interest Rate Beta and Oil Beta both spiked this week, reaching the top decile and top quintile TTM respectively. This came from both sides of the book, suggesting that investors aligned themselves with stocks that benefit from both rising rates and rising oil prices, and sold stocks that have inverse relationships to rates and oil.
• Wolfe’s HF Crowding factor was particularly strong, reaching the 99th percentile TTM and 96th percentile since inception as investors bought popular longs particularly in Health Care and Communications Services. Short Interest remained negative indicating that popular short stocks faced headwinds this week.

International Extreme Movers Portfolio Exposures

• Stocks in Japan and India drove much of the 7% long allocation to Financials. Similar to last week, more than half of that allocation being attributable to Banks and Insurance.
• Health Care swung into positive territory this week with a long 4% allocation in the top quartile over the trailing twelve months (TTM). Biotechnology stocks were the main drivers, while Health Care Providers and Services was the lone negative industry.
• Information Technology dropped to the bottom of the International portfolio this week, with a -9% allocation that placed in just the 10th percentile since inception. Unlike last week, Semiconductors and Semiconductor Equipment was the key driver at -8%.

• Beta and volatility factors were strongly negative in the International Extreme Movers portfolio this week as investors took to risk-off sentiment. All beta and volatility factors landed near or below the bottom quintile TTM.
• Value factors were mixed, with Book to Price and Dividend Yield exposures positive, and Earnings Yield exposures slightly negative. The Axioma Earnings Yield factor showed a particularly low Earnings Yield value, that ranked in the 14th percentile on a TTM basis.
• Interest Rate Beta exposure spiked this week as Financials dominated the portfolio and Tech was shorted. The 0.20 exposure marked the 69th percentile of the trailing year.
• Short Interest and Crowding factors were both strongly negative this week, reaching the bottom quintile TTM. This suggests that hedge fund managers may have seen headwinds as investors sold both popular longs and popular 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 (DM) dominated the International portfolio with a 20% long allocation this week. This placed in the 74th percentile both since inception and on a trailing-twelve-month (TTM) basis.
• Japan drove most of this allocation at 16%. Canada was the second largest driver, reaching its highest allocation over the TTM period at 8%. Despite the overall positive allocation to DM, the Europe & Middle East region had negative allocation this week.
• In the Emerging Markets, Asia accounted for -19% of the total -20% short allocation and was driven primarily by China. The EMEA region was the second largest driver, with South Africa alone contributing a -8% position. The Americas region was the only positive contributor, driven by Brazil.

Regards,
Jose