Latest Research

The one-year anniversary of the 2022 bear-market low occurs on October 12th, yet—after all this time—we’re not confident enough to declare it as the bull’s first birthday.

We’re interested to see whether or not CBNC breaks out new baseball caps for the occasion, as they did in the late 1990s for “Dow 10,000.”

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. 

Growth has performed much better among large caps than small caps, resulting in higher relative valuations for large caps. Based on factor valuations, we think value provides a more attractive large-cap entry point, while growth looks more attractive within small caps. 

Surging interest rates were the story of September, as the benchmark 10-year and 30-year yields both moved 50 basis points higher. The rate increases were felt most acutely by Utilities, as the sector ETF (XLU) fell over 13% in the twelve trading days from 9/15 to 10/2. XLRE, the Real Estate sector ETF, was squeezed as well, falling 11% during that same period.

This month is the five-year anniversary of the last time Small-Cap and Large-Cap P/E ratios in our L3000 Universe were roughly equivalent. Price returns over the last five years tell most of the story about the widening Small Cap discount: S&P 500 +58%, S&P 600 +21%.

With Q2-23 reporting complete, the ratio reads 1.06. Based on the final numbers recorded for the last six quarters, it looks like the longest late-cycle earnings streak in this vignette’s history (average reading of 1.08).

Despite the “Lower-Risk” signal, the surge in bond yields and a higher U.S. dollar have materially tightened financial conditions: Caution is strongly recommended.

Typically, duration contracts when rates go up, all else equal. The Magnificent Seven, however, saw their duration going the wrong way: They seem to be the only cohort to see duration lengthening and are now more risky than a year ago.

The dominating and overwhelming gains by the Magnificent Seven have made it nearly impossible for most traditional equity factors to excel. Only two styles have managed to surpass the S&P 500’s YTD return: Growth and Quality—and both have healthy exposures to the Magnificent Seven.

In a year when the Magnificent Seven has epitomized the concept of price momentum, investors who spotted that phenomenon and employed a momentum ETF to capitalize on the trend were not rewarded: Owning MTUM or SPMO not only forewent the tech titan rally, they both badly lagged the S&P 500.

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September’s 5% haircut in the S&P 500 marked its worst month of performance this year. The dip in the market, accompanied by steady-to slightly rising EPS estimates, translated to similar trims for the downside figures.

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Join us for a Zoom Call with Chief Investment Officer, Doug Ramsey where he will share his thoughts and observations on today's market and what he sees looking ahead.

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If uncertainty is the bane of investors everywhere, then the fear of large losses in a bear market is the boogeyman hiding in the closet. The threat of an agonizing downturn often leads investors to carry lower equity weights in their balanced portfolios than might be advisable, and even drives them to hold excess cash to avoid the risk of sizable declines.

ETF families have responded to this anxiety with a fund design that takes some downside risk off the table and may enable investors to tiptoe into equities even when they suspect a selloff might be around the corner. Known as “buffer”, “defined outcome”, or “target outcome” funds, these ETFs utilize an options collar overlay to trim the upside and downside tails of the underlying asset’s return distribution, thereby giving nervous investors a more comfortable way to pick up some equity exposure during riskier times.

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The Core Fund was down 1.1% in August, as equities and fixed income both posted negative returns for the month. 

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