Markets Rebound, China Shifts, Fed Pauses

Market Summary

US Market: 4/25/2025 - 5/1/2025

• After a sharp downturn following President Trump's "Liberation Day" tariffs, U.S. equities have rebounded, with the S&P 500 and Nasdaq posting their longest winning streaks since 2004. Strong earnings from tech giants like Microsoft and Meta, along with signs of easing trade tensions, have bolstered investor confidence.
• China is gradually reducing its holdings of U.S. Treasuries, reallocating its $3.2 trillion in foreign exchange reserves toward assets like gold, private equity, and non-U.S. dollar-denominated securities. This move aims to mitigate risks associated with geopolitical tensions and financial security concerns.
• The Federal Reserve is expected to keep interest rates steady at its upcoming meeting, despite a 0.3% contraction in Q1 GDP and persistent inflation concerns. While the labor market shows resilience, with 177,000 jobs added in April, the Fed remains cautious, monitoring the impacts of recent trade policies and economic indicators.

Extreme Movers Portfolio Performance

Note: Extreme Movers definitions can be found in the Factor University section on our website.

US Extreme Moves Volatility and Factor-Driven Speedometers

• The US Extreme Movers portfolio saw a 17.3% return this week, ranking in the 43rd percentile for the trailing twelve months (TTM) and the 63rd percentile since inception. This level of performance marks the week as being “Volatile”. The divergence in the TTM and since-inception percentiles indicates the elevated levels of volatility the market has seen in the past year.
• Factors accounted for 21.3% of the total return, placing the portfolio in the “Neutral” category. This ranks in the 78th percentile for the trailing twelve months and the 65th percentile since inception. Industry factors drove two thirds of the total factor return.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio earned a 15.6% return, placing it in the "Neutral" category as well for the week. This return ranks in the 63rd percentile over the trailing twelve months and the 67th since inception.
• Factors accounted for 21.2% of the total return, which classifies as “Alpha Driven". This level of factor return is in the 80th percentile for the portfolio over the trailing twelve months and the 75th since inception. Country and Industry factors drove almost 80% of the total factor return.

US Extreme Movers Portfolio Exposures

• Information Technology climbed this week to become the most represented sector in the US Extreme Movers portfolio, reaching a 35% allocation. This puts the sector in the 98th percentile on both a trailing twelve-month and since-inception basis. Every industry within the sector contributed to the increase, with Software leading the way at 15% on its own.
• Healthcare saw a significant shift this week, moving from a -10% allocation last week to 10%. This change pushed the sector into the 86th percentile over the trailing twelve months and the 78th percentile since the portfolio’s inception. Biotechnology and Pharmaceuticals were the key drivers, each contributing by 5%.
• On the other end of the spectrum, Consumer Staples was the least represented sector this week, with a -13% allocation. This positioned the sector in the 4th percentile for both the trailing twelve months and since inception. Food Products and Beverages were the most underrepresented industries, with allocations of -5% and -4%, respectively.

• Beta and Volatility remained in favor this week. Wolfe’s Volatility, Axioma’s Market Sensitivity, and Barra’s Beta all ranked in the top decile of the data for both the trailing twelve months and since inception. Both the long and short books contributed to this exposure, with the long book driving the majority of the allocation.
• Crowding factors showed mixed signals this week. Hedge fund crowding ranked high, landing in the 89th percentile on a trailing twelve-month basis—all of which came from the long book, suggesting investors were leaning into names commonly held by hedge funds. In contrast, ETF Flow and Short Interest were relatively neutral, with the short book driving the exposure in both cases.
• Value factors ranked low this week, with all factors in the category landing in negative territory. Barra’s Dividend Yield stood out in particular, placing in the 4th percentile on both a trailing twelve-month and since-inception basis. While both the long and short books contributed to the negative exposure, the short book was the primary driver—indicating investors were shorting names with high Dividend Yield exposure.

International Extreme Movers Portfolio Exposures

• Similar to the US portfolio, Information Technology was the most represented sector in the international portfolio this week, with a 9% allocation. This placed the sector in the 80th percentile on a trailing twelve-month basis and the 85th percentile since inception. All industries within the sector had positive allocations, with Technology Hardware, Storage & Peripherals and IT Services leading at 3% each.
• Healthcare rose this week, shifting from a -1% allocation last week to 7%—placing the sector in the 85th percentile on a trailing twelve-month basis and the 86th percentile since the portfolio’s inception. Within the sector, Pharmaceuticals had the highest representation at 5.33%.
• As with last week, Materials remained the least represented sector, holding a -9% allocation. This placed the sector in the 16th percentile on a trailing twelve-month basis and the 22nd percentile since the portfolio’s inception. All industries within Materials contributed to the negative allocation, with Metals & Mining being the most significant at -4%.

• Growth factors were in favor this week, with Barra’s Growth ranking in the 88th percentile. This exposure was entirely driven by the long book, indicating that investors were buying names with high growth characteristics.
• On the other hand, Value factors were out of favor this week, with all measures ranking below the mean for both trailing twelve months and since inception. Axioma’s Value factor, in particular, hit one of the lowest levels in this category, ranking in the 13th percentile. The short book drove this exposure, suggesting that investors were selling names with high value.
• Crowding factors are also worth noting. While the Hedge Fund crowding factor remained fairly neutral this week, the Short Interest factor stood out with a notably low -0.73 exposure, ranking in the 1st percentile for both ITD and TTM. Both the long and short books contributed to this exposure, indicating that investors sold names with high short interest and bought those with low short interest.

International Extreme Movers Portfolio Country Exposures

This 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 were back in favor this week, with an 18% allocation, placing the region in the 67th percentile for trailing twelve months and the 72nd percentile since inception. In contrast, Emerging Markets held a -19% allocation, positioning them in the 23rd percentile for trailing twelve months and the 20th percentile since inception.
• Within Developed Markets, the Pacific region had the highest representation at 10%, with Japan contributing the most at 7%. Europe & the Middle East had a 9% allocation, with Finland contributing 2% on its own, placing the country in the top rank for trailing twelve months.
• For Emerging Markets, Asia was the main contributor to the short allocation. China accounted for -19% on its own, while India contributed -16%. Other countries in the region had positive contributions, but to a lesser extent. Europe, the Middle East & Africa also had a -9% allocation, placing the region in the 16th percentile for both trailing twelve months and since inception.

Regards,

Jose