Oil Production Cuts Put Energy in the Fast Lane
US Market: 3/31/2023 - 4/6/2023
- All three major US headline indices posted positive returns last week. The Dow led the charge at 1.90%, followed by the S&P 500 at 1.30%. The Nasdaq finished much further back but was still in the green at 0.60%.
- Oil prices jumped more than 8% on Monday and maintained elevated levels following OPEC+‘s surprise production cut of over one million barrels per day.
- Index futures were moderately higher on Friday after a relatively quiet jobs report. The US added 236,000 jobs in March, and hourly earnings increased by 4.2% since March last year, the smallest increase since June 2021.
Extreme Movers Portfolio Performance
US Extreme Movers Volatility and Factor-Driven Speedometers
- Following macroeconomic stimuli, the US Extreme Movers portfolio moved back into "Volatile" territory this week. This week's 14.3% lands at the 64th percentile since January 2007 but only the 28th percentile over the last twelve months.
- The “Very Alpha-Driven” markets of last week were short-lived. This week’s market earned a “Factor-Driven” label, as 31.5% of the portfolio’s return was attributable to market factors.
International Extreme Movers Volatility and Factor-Driven Speedometers
- The International portfolio's return was very similar to that of the US (14.5% vs. 14.3%). However, the International portfolio's volatility has historically been higher than the US, so it fell in the "Neutral" category.
- International portfolio managers found much more alpha availability this week, as only 19.2% of the portfolio's return was factor-driven. Alpha levels in the ex-US market hit the 96th percentile on a trailing twelve-month basis.
US Extreme Movers Portfolio Exposures
- This week, the spotlight returned to concentrated underweight exposures, with industrials' -32% allocation being the most negative since we started collecting data in 2007. Electrical equipment, machinery, and building products led most of the allocation.
- Health Care had a long allocation, placing it in the top 98th percentile on a trailing twelve-months (TTM) basis and the 97th percentile inception-to-date (ITD). Health Care Providers & Services drove two-thirds of the allocation.
- This week, Banks and Capital Markets led the decline in Financials with a combined allocation of -20%, while the other industries within Financials showed positive performance. As a result, the Financials sector had an overall allocation of -14%.
- Beta exposure landed in the bottom quintile ITD, all coming from the short side of the book, but risk wasn't entirely off the table as residual volatility factors remained positive.
- Value and Growth fell into relatively neutral territory, with most indicators across all models landing close to their historical mean.
- Interest Rate Beta exposure had negative contributions from both long and short positions. These tilts suggest that investors fled from stocks with a positive relationship to rising rates and towards stocks inversely correlated to rates.
- Investors favored popular longs and popular shorts for their long allocations. These preferences are indicated by high crowding and short interest coming from the long side of the book.
International Extreme Movers Portfolio Exposures
- Energy landed in the top decile for the twelve-month trailing, with the entire allocation coming from Oil, Gas & Consumable Fuels. Stocks in China, Canada, Hong Kong, and Brazil contributed to this allocation.
- Most of the negative allocation in Consumer Discretionary was driven by Specialty Retail, although all Industries except for Hotels, Restaurants & Leisure had short allocations. Hong Kong had the highest negative exposure at 4.5%.
- Electrical Equipment and Building Products led the negative exposure to Industrials. All geographies except Australia and Asia contributed to this negative allocation.
- The negative exposure to Volatility came from the short side of the book, meaning investors bet against stocks with high volatility. This exposure ranked at the bottom decile ITD, with Hong Kong contributing the most to this negative allocation.
- Similarly, the negative exposure to Beta came from the long side of the book, suggesting that investors fled away from stocks with a positive relationship to equity markets. China was the most significant contributor to these negative allocations.
- Unlike the US portfolio, the positive Short Interest exposure came from the short side, showing investors' aversion to unpopular short positions. On the other hand, the HF Crowding exposure came from the long side, suggesting that investors preferred popular long positions.