This publication is a short excerpt from our weekly Prometheus ETF Portfolio note. While we reserve our forward-looking views on macro and portfolio construction to paid subscribers, we offer our high-level diagnostic of macro conditions here as we aim to offer value to the broader public.
For those unfamiliar: The Prometheus ETF Portfolio aims to allow everyday investors to access an investment solution that combines active macro alpha, passive beta, and strict risk control, all in an easy-to-follow, low-turnover solution. We aim to achieve strong risk-adjusted returns relative to cash, with limited capital drawdowns in depth and duration. We do this in a highly accessible package, which rotates between five highly liquid ETFs, readily available to any investor with a brokerage account. You can sign up for it here:
Let us dive into our assessment of macroeconomic conditions:
Markets moved to price lower growth outcomes, but liquidity conditions remain elevated.
Economic data momentum softened significantly this week, with manufacturing data disappointing expectations.
Industrial activity remains weak, which creates a more challenging backdrop for commodities.
Against this backdrop, our long-only Prometheus ETF Portfolio went on to post new all-time highs.
Let's dive into the data driving our assessment before moving on to positioning. We begin by examining the path of asset price returns over the last week:
As we can see above, assets largely moved to price in falling growth conditions, with gold and treasuries seeing the smoothest path of returns, but liquidity conditions remained abundant. This pricing came as economic data momentum fell significantly this week:
This weakness in economic data momentum was driven by weak industrial data (manufacturing orders, PMIs, and manufacturing employment). For a further understanding of how economic dynamics have been priced into markets, we show our tracking of market-implied macroeconomic regime probabilities below, which reflect the aforementioned dynamics:
Markets continued to price regime probabilities consistent with a rising real growth and liquidity environment on a trend basis. This pricing remains consistent with our tracking of economic conditions. However, as noted, industrial activity remains weak within this broader theme of strength. We allocate accordingly. Until next time.