Articles by Greg Swenson, CFA Director of Equities

Momentum was the best performing factor for 2024 - and it wasn’t really close. Growth continued to perform better within large caps compared to small caps. Sentiment and growth were also positive while, no surprise, value was negative again.

After several reductions to the IT sector, Communications Equipment was purchased as a new group holding in the Select Industries equity portfolio.

Select Industries surged 7.3% in November, driven by post-election gains in Financials and small caps. Key moves included new investments in Precious Metals and the launch of a thematic group, DOGI, targeting stocks impacted by regulatory shifts. Portfolio changes remain rooted in data-driven GS Scores, ensuring disciplined, unbiased decision-making.

The election gave small caps and Financials a boost, but didn’t help value stocks as hoped. Momentum and growth were the main winners within large caps, while no factors worked well among small caps, where more speculative names benefited.

Financials had another boost as the sector should thrive under the new administration. Among others, less regulatory oversight and weaker capital controls are apt to improve profitability. Within Info Tech, several industries that contain top AI-beneficiaries have deteriorated; both Semiconductors and Tech Hardware Storage & Peripherals are now rated Unattractive.

October brought mixed results across strategies. Core fell 1.6% as equities and fixed income declined, while Select Industries dropped 1.9%, hurt by earnings misses in sectors like Health Care and Semiconductors. AdvantHedge gained 1.2%, capitalizing on companies with negative earnings surprises.

The portfolio is positioned with a slightly pro-cyclical stance, but also owns defensive and growth-oriented groups that are deemed attractive by the Group Selection (GS) Scores.

The Leuthold Core Fund's Major Trend Index improved to High Neutral due to better economic readings and bullish technical indicators, overriding high valuations and elevated sentiment. As a result, net equity exposure in the Core fund increased to 55%. The Core composite rose 1.0% in September from gains in both fixed income and equity holdings.

While the IT sector and its group constituents have fallen from the upper echelons of the GS Scores, the  majority of the underlying industries sit in the middle range (Neutral) of the ratings. This isn’t a negative call toward the IT sector, but a shift away from the high-conviction outlook we previously held. 

Due to a falloff in our sector rankings, exposure to IT in our equity portfolio has dropped sharply over the past year. Elevated valuations, combined with poor relative strength, overbought signals, and slowing growth are the primary impetus for the declining scores.

The Major Trend Index has oscillated within the Neutral range throughout 2024, moving back and forth between High Neutral and Neutral earlier on, and more recently between Neutral and Low Neutral.  Standing at Low Neutral today, the exact reading in the MTI within this range is less important than the trend, which has shifted to Neutral and below with recent economic data and weaker equity prices.

Financials is now the top sector weight in our Select Industries portfolio, with impressive valuations, growth, and relative strength driving industries within the sector up the ranks of the Group Selection (GS) Scores.

The Major Trend Index further deteriorated during July, going from Neutral down one notch to Low Neutral.  The Technical category - long the positive counterweight to the negative readings within the Valuation, Cyclical, and Sentiment categories – was downgraded as large-cap indexes retreated from their mid-month all-time highs.

The portfolio trimmed exposure to Information Technology in July, with the Financials sector being the main beneficiary of the sales proceeds. 

The mild CPI report on July 11th kicked off a violent rotation out of mega-cap stocks, with the Russell 2000/S&P 500 performance differential at +4.5% for the day. Other factors reversed as well, with all major styles posting inverse performance relative to their year-to-date numbers.

The Core composite was up 0.1% in June. Narrow mega-cap leadership continues to negatively impact our all-cap equity approach on a relative basis, but short positions have performed well, providing strong positive long – short performance for the month and year-to-date.

The portfolio continues to maintain exposure to growth, cyclicals, and defensives, with a slight preference for rising interest rates and positive performance. 

The Major Trend Index remains at High Neutral, after improving one notch from Neutral in mid-May.  The primary driver for the upgrade, the Technical category, is also the main threat to the MTI maintaining its slightly positive stance.

With the Mag 7 driving S&P 500 returns on a daily basis, the other 593 stocks have become less correlated with the S&P 500’s day-to-day changes. Although dropping correlations are typically a good thing for active managers, we think this time is different.

While we have lightened Info Tech holdings, the portfolio continues to be positioned with exposure to both the big growers and economically sensitive cyclicals.