Omega Point Extreme Movers
Guide to understanding Omega Point's Extreme Movers portfolios and methodologies
In 2022, Omega Point introduced Extreme Movers, the latest tool in its arsenal to understand what is driving markets from week to week.
In our January 8, 2023 edition of Factor Spotlight, we analyzed the historical behavior of the US Extreme Movers portfolio to better contextualize recent markets in light of how they stack up against periods dating back to 2007. In addition, we used that historical data to better categorize markets by how volatile and factor-driven they are. We use this framework to give our Factor Spotlight readers a sense of the current climate that fundamental managers face each week.
The Extreme Movers portfolios are weekly-rebalanced, market-neutral portfolios that consist of the top decile of stocks from the Russell 1000 and MSCI ACWI ex-US, respectively, based on performance on the long side and the bottom decile on the short side.
You can find additional information on the construction of the Extreme Movers portfolios in the May 22, 2022, edition of Factor Spotlight.
Extreme Movers Portfolio Performance
Please note that the portfolio's return will always be positive by constructing a portfolio that is long the top movers and short the bottom movers in an index. That said, both the total return and decomposition of that return provide valuable insight into the conditions of the market. Earlier this year, we introduced a new framework to categorize weeks by how volatile and factor-driven they are based on the Extreme Movers portfolios. We leveraged that framework below to provide context around how this most recent week compares to historical markets back to 2007. What we want to observe is:
- How volatile was this week? Because the Extreme Movers portfolios invest in the best and short the worst performers of the week, the total return of the portfolios points to the volatility spread available in the market. A large return suggests a wide dispersion of stock returns, while a smaller one suggests a light dispersion and calmer markets. We will categorize each week on a scale of "Very Calm" to "Very Volatile."
- Was the market alpha-driven or factor-driven? By decomposing the total return into its underlying components, we can determine whether the volatility spread above provided fundamental investors with opportunities for alpha or factor noise, making alpha harder to come by. We will categorize each week on a scale of "Very Alpha-Driven" to "Very Factor-Driven."
US Extreme Movers Portfolio Exposures
Looking at the Extreme Movers from an exposure lens helps us decompose the individual styles and sectors associated with the portfolio's factor-driven performance and better understand broader patterns such as risk-on / risk-off or sector rotation. To provide a relative perspective on the size of the exposures, we’ve included columns that represent where the exposure ranks on both a trailing twelve-month (“TTM”) percentile (“Ptile”) basis and an inception-to-date (“ITD”) percentile basis. The inception date for these portfolios is January 1st, 2007.
International Extreme Movers Portfolio Exposures
Looking at the Extreme Movers from an exposure lens helps us decompose the individual styles and sectors associated with the portfolio's factor-driven performance and better understand broader patterns such as risk-on / risk-off or sector rotation. To provide a relative perspective on the size of the exposures, we’ve included columns that represent where the exposure ranks on both a trailing twelve-month (“TTM”) percentile (“Ptile”) basis and an inception-to-date (“ITD”) percentile basis. The inception date for these portfolios is January 1st, 2007.
We hope you found this article helpful. Please reach out to Omega Point if you'd like to learn more about our extreme movers portfolios and methodologies.