Tech Dominates Through CPI Update and Fed Meeting

Market Summary

US Market: 6/7/2024 - 6/13/2024

• US headline indices were mixed this week. The Nasdaq rallied 2.88% over the five trading days ending June 13th. The S&P 500 followed at 1.51% while the Dow slipped, ending at -0.61%.
• On Wednesday, the Consumer Price Index remained flat month-over-month in May and increased 3.3% from a year ago. US stocks jumped in Wednesday’s morning session.
• The Federal Reserve announced that the benchmark rate will remain unchanged for now and pointed to the likelihood that only one rate cut is currently expected before the end of 2024.

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 volatility dropped slightly this week as the US Extreme Movers portfolio notched a return of 14.6%. That return falls in the 49th percentile on a trailing-twelve-month basis and the 65th percentile since inception, which categorizes the market as “Volatile.”
• The US saw much less factor influence than it had over the past two weeks. The 16.5% contribution from factors lands in the 24th percentile since inception and is categorized as “Alpha-Driven.”

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio also pointed to a “Volatile” week with a performance reading of 15.9%. That return level marks the 64th percentile since inception.
• Unlike in the US, factors were the dominant force in stock return in the international space. Factors accounted for 40.6% of the total which falls in the 91st percentile since inception and earns the “Very Factor-Driven” distinction.

US Extreme Movers Portfolio Exposures

• The US portfolio was heavily concentrated in Information Technology, after being the worst sector last week, with its 31% allocation reaching the 96th percentile since the inception of the portfolio. The strong allocation was driven by Semiconductors and Software, which were the two largest industry concentrations in the portfolio at 13% and 11% respectively.
• Consumer Staples was had the lowest allocation, with a short 10% position that placed in the 7th percentile since inception. All industries contributed negatively to the exposure.
• Communication Services and Materials also saw significantly low exposures, with both placing in the bottom percentile since inception. Communication Services was largely driven by Entertainment at -6%, while Materials was driven by Metals & Mining also at -6%.

• Investors had low appetite for volatility this week, as volatility exposures landed in the bottom decile on a trailing-twelve-month (TTM) basis. The negative exposure was driven by investors shorting higher-vol stocks, particularly in the Health Care and Consumer Discretionary sectors.
• Growth was strongly back in favor this week, as exposures reached the top decile over the last twelve months. This was again driven by both sides of the book, as investors bought high-growth names in Tech, and sold low-growth names in Health Care, Communication Services, and Financials.
• In contrast to last week, Wolfe’s HF Crowding showed a strong positive exposure while their Short Interest exposure was moderately negative. This suggests hedge fund managers may have felt tailwinds as popular bets worked for them on both sides of their books.

International Extreme Movers Portfolio Exposures

• Information Technology was the top sector in the International portfolio this week. The 13% allocation was less concentrated than the US position but still placed in the 94th percentile since inception. The allocation was driven by IT Services and Semiconductors.
• Consumer Staples represented the largest short allocation at -9%, placing in just the 7th percentile since inception. This was driven largely by Beverages and Food Products, particularly in Mexico, Hong Kong, and China.
• Real Estate also saw a particularly low allocation at -6%, which placed it in the bottom decile over the trailing-twelve-month period. This was driven primarily by Real Estate Management & Development in Hong Kong.

• Beta and Volatility factors were quieter this week, as International investors started to increase their appetite for higher-volatility names, while still leaning towards lower beta.
• Similar to the US portfolio, value was out of favor while growth exposures turned positive. Much of the growth exposures were driven by short positions in Real Estate along with long positions in Financials and Industrials.
• Oil Beta exposure recovered from last week’s low point, but remained negative, as investors shorted stocks that tend to benefit from elevated oil prices and bought stocks that move inversely. Interest Rate Beta was positive, as investors favored stocks that move positively with increasing rates.
• Crowding factors echoed the US portfolio, showing a moderately positive exposure to HF Crowding and a negative exposure to Short Interest. This suggests that popular bets worked well for hedge fund managers on both sides of their books.

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.

• Emerging Markets were in favor over Developed Markets this week, accounting for a 3% long allocation in the International portfolio. This allocation marked the 58th percentile over the trailing-twelve-months, while Developed Markets’ -4% allocation marked the 35th percentile over the same period.
• Asia was the largest regional contributor to the EM allocation, driven largely by a 36% allocation to India that was the highest allocation ever seen in the portfolio. Despite the overall positive allocation to EM, the Americas region saw large negative allocations in Mexico and Brazil that both landed in the bottom decile TTM.
• Developed Markets were out of favor across all regions, with the Pacific and EMEA regions tying at -2%. That said, France was the largest negative contributor, accounting for a -7% position that fell in the 2nd percentile TTM and just the 8th percentile since inception.

Regards,
Reshma