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AdvantHedge was down 17.6% in April, trailing the inverse S&P 500 (-12.8%), and the inverse Russell 2000 (-13.7%).

The Leuthold Core and Global Portfolios both participated in the equity market rally, but gains trailed their respective 100% equity benchmarks.

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The historically reasonable prices didn’t last long (although they may return) as April’s +13% S&P 500 bounce pushed our downside-to-median estimate from -12% to -24%—right back to where we were at the end of February.

Valuation dispersions remain at extreme levels. Dispersions within Large Cap stocks remain above Tech Bubble levels, but are on par with Mid and Small Cap stocks on an absolute basis. Spreads within sectors also present historic stock selection opportunities.

April was a month of plummeting payrolls, eviscerated earnings, and crashing commodities—some of the worst data since the 1930s. It was also the best month of performance for the S&P 500 since January 1987 and it helped lower the YTD loss to the single digits. The punishment, it would seem, doesn’t fit the crime.

Our Royal Blue Growth segment ended the month of April with a 0.3% YTD gain. That hardly seems fair given the economic calamity/uncertainty.

To look at this relationship another way, our trailing Small Cap P/E (13.9x) is in the 24th percentile of observations from 1983-present. Large Caps (20.8x) are in the 86th percentile.

With the first month of 2020 earnings in the books, our Up/Down ratio starts Q1 at 0.72. This miserable figure was expected, but seeing it graphically, in the same ballpark as the great recession, reminds us of the gravity of the current economic situation. And the worst is yet to come!

While macro data has turned from “bad” to “less bad,” a lot of hope for a quick recovery in economic activity has been priced in. We recommend staying within range of the Fed’s fire power for the time being.

From a top-down view, since 2003, Value’s performance has been much more closely tied to various asset markets and macro drivers. From a bottom-up perspective, we believe the change in Value’s migration behavior might be the key to its failure. We believe macro tailwinds and positive surprises are both necessary for a true Value revival.

For the second consecutive month, Health Care, Communication Services, and Information Technology remain the top-three rated sectors. Consumer Discretionary and Financials swapped spots and are ranked 4th and 5th, respectively. Real Estate joined Materials and Energy to rank at the bottom.

Health Care has been the best performing sector following mid-February’s market peak. Its robust relative performance during this bear market isn’t terribly surprising given the sector’s defensive qualities, but it has impressively outpaced other safe haven areas.

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With May Day marches and demonstrations cancelled, the workers of the world have one less opportunity to remind us of the ever-widening wealth gap and the evils of the “Top 1%.” It’s a shame, because this was the year that we active managers would have stood shoulder to shoulder with those protesters voicing our own contempt for the “Top 1%”… of the S&P 500.

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Through last night’s close, the S&P 500 had gained 25.0% in exactly one month. Impressive, but a bit superficial. Anyone running active equity portfolios recognizes the breadth of this move has been unusually narrow.

Read this week's Major Trend.

Read this week's Major Trend.