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End Of Week ETF Strategy Positions
Welcome to The Observatory. The Observatory is how we at Prometheus monitor the evolution of both the economy and financial markets in real-time. Here are the top developments that stand out to us:
i. Real Personal Spending accelerated, in line with expectations. Real Personal Consumption came in at 2.78%, a sequential acceleration from the last print. This print surprised expectations with a monthly charge of 0.9% versus expectations of 0.8%. Motor Vehicles & Parts has been the largest contributor to these moves with a weighted year-over-year growth of Motor Vehicles & Parts has been the largest contributor to these moves with a weighted year-over-year growth of -0.9%. Over the last year, Consumption has been in a downtrend though the latest print breaks this trend.
This mix of personal spending resulted in a month-over-month increase in employee compensation; however, proprietors’ incomes declined.
ii. Our High-Frequency tracking of growth and inflation showed modest improvements in growth and modest reductions in inflation this week, reasonably consistent with market pricing this week.
iii. Our systems continue to point to Equity & Credit shorts with inflation-beneficiary tilted long exposures and a high level of FX and/or cash. Our ETF Strategy and Alpha Strategy (both un-levered) posted losses this week, down -1.55% and 0.55%, respectively, on the back of the significant bounce in Equities. However, our systems continue to tell us that equity shorts remain warranted. Further, market regime dynamics tell us that inflation beneficiaries (TIPS, Gold, Commodities) are all regimes supported by cross-asset trends. Tightening liquidity dynamics favor both the dollar and the long end of the Treasury curve (relative to the short end). Below, we show cumulative performance for our ETF Strategy year-to-date along with the updated asset class exposures:
As we mentioned earlier, we suffered losses on our equity shorts this week, however, our signals continue to tell us the current environment doesn’t favor these exposures. At the asset allocation level, here are our current ETF Strategy exposures:
Specifically, the ETFs contained in the current allocation are as follows:
Stocks: SPY (-5%), XLP (-5%), XLY (-3%), XLC (-5%), XLV (5%), XLB (-5%), XLI (-5%), XLK (-4%), XLF (-4%), XLU (5%), XLE (3%),, HYG (-12%), TIP (12%), UUP (12%),
Commodities: DBC (3%), USO (2%), UGA (2%), UNG (2%), CORN(3%), SOYB(4%), CANE(4%), WEAT(2%), GLD (5%)
Fixed Income: HYG (-12%), TIP (12%)
Currencies: UUP (12%)
Unliked our ETF Strategy, our Alpha Strategy has added positions to Treasuries due to cross-sectional variation in the opportunity set and the slightly different strategy parameters. Here is how we are looking to set up our Alpha Strategy for next week:
Until next week. Stay nimble!