Articles by Greg Swenson, CFA Director of Equities

Net equity exposure in the Core strategy is currently 56% - above our typical 50% midpoint as the market has moved higher while the MTI was recently in High Neutral.

After accumulating and maintaining heavy exposure to Information Technology since early 2023, Select Industries trimmed the weight in the sector by selling Internet Services & Infrastructure. 

Risk appetite continues to be stronger within large caps compared to small caps, with AI themes more prevalent among the biggest names. Less volatile, more profitable firms are winning within small caps.

The Core composite gained 2.7% in March with outperformance from the equity positions, both long and short, helping the fund participate in another strong month for equities. 

In a market that is less than ideal for an all-cap strategy, Select Industries has had success by investing in several key themes: mega-cap growth, housing/construction, and IT supply-chain beneficiaries. 

The Major Trend Index continues to sit at High Neutral, with strong market action continuing to override concerns among the other indicators (Valuations, Economy, Sentiment).  With the MTI on the positive side of Neutral and market action increasing the value of long positions, current equity exposure now sits at 56%.

Select Industries looks much different than it did one year ago, with exposure to growth-oriented groups increasing, while commodity- and defensive holdings have been declining. This shift benefited performance throughout the last twelve months. 

Factor performance was decidedly risk-on in February. Through month end, high-momentum names have outperformed the universe by 6.7%—we have to go back to the Tech Bubble to find a year when momentum had a stronger start.

The Core composite gained 1.3% in January. Among the underlying holdings, excellent long-short performance offset negative returns from the fixed income allocation.

Select Industries has been successful at finding leading industry groups outside the handful of stocks driving the S&P 500 over the last year. Homebuilding, Semiconductor Equipment, and Trading Companies & Distributors have all been key contributors to the strategy.

The Core Strategy gained 3.8% in December as both equities and fixed income positions closed out the year with large gains.

Much like the overall market, factors reversed course in 2023 with most broad categories performing opposite of what they did in 2022. While two years ago, safety was a virtue, in 2023, the riskier the better.

At the start of a new year, we look back at the sector shifts that transpired throughout 2023—mainly going from commodity and defensives to start 2023—to growth and cyclicals as we begin 2024.

The equity rally during November was strong enough to push the Major Trend Index back into Neutral territory, as the increasingly positive Technical components serve to offset bearish Valuation and Cyclical category readings. 

Value has worked much better within small caps compared to large caps for three of the last four years. This is nothing new, though, as value is historically a much better factor within the less efficient smaller-cap universe.

The portfolio is allocated among various style categories—maintaining diversification—yet still taking concentrated positions in our favorite industry groups.

The Major Trend Index reading deteriorated to Negative in early October and remained there throughout the month.

Health Care Equipment and Health Care Supplies were both downgraded to Unattractive this month.  Weight-loss drugs have generated most of the negative headlines in the space, but we’ve also observed slow and steady deterioration in top- and bottom-line growth. 

The Major Trend Index fell to Negative with the latest reading, after spending the last nine months within the Neutral zone.  With the valuation, cyclical, and sentiment components already negative, recent deterioration of market technicals was enough to move the MTI lower. 

Oil & Gas Equipment & Services was purchased for the Select Industries portfolio last month, re-establishing exposure to what was our largest overweight entering 2023. The sector leapt from #11 to #4 in the ranks on the back of improved sentiment and macro readings.