Pivotal Point of View – April 2022

The Pivotal Point of View Commentary

The backdrop:

  • Inflation, rate hikes and protracted war continued to be the primary drivers of market performance in March

  • War inflicted supply worries continue to drive Nat Gas (+28.2%) and WTI Crude Oil (+4.8%) higher as well commodities in general illustrated by an increase of 8.2% from the Dow Jones Commodity Index leaving it +26% YTD.

  • Reacting to commodity inflation and headline inflation at 40-year highs, the U.S. 10 Year Treasury yield continued higher from 1.84% to 2.33% while the 2 Year moved even more from 1.43% to 2.28%, right at the point of inversion. The U.S Dollar rallied 1.7%.

The equity impact:

  • March presented another reversal in leaders and laggers, especially in the equity markets. The Russell 2000 generated 1.1% compared to 3.7% from the S&P 500 and 3.4% from the Nasdaq, whipsawing once again from its significant outperformance in February following significant underperformance in January.

  • Developed equity markets well outperformed emerging markets with the MSCI World returning 2.7% vs. a loss of 2.3% from MSCI EM. In Asia, Chinese markets suffered significant losses as exemplified by 7.8% loss in the CSI 300, while Japan’s Nikkei 225 generated 5.8%.

  • Within equities, most sectors generated positive returns, once again led by energy (XLE +8.3%) and utilities (XLU +9.6%) respectively. Healthcare and technology rebounded though both remain in the red YTD.

  • In the factor space, Value and Growth both had strong months as PivotalPath’s U.S. Cyclical Sectors and Growth Sectors Baskets returned 4.2% and 4.3% respectively, though remain mirror images YTD with Cyclicals +7.0% while Growth is -7.0% through March.

Managed Futures have their day in March along side Global Macro

  • Managed futures continue to do what they are supposed to do, capture trends that are long in the marking.

  • The PivotalPath Managed Futures Index generated 6.9% on the moth, which is the largest monthly gain since May of 2003. Among PivotalPath’s 45 sub-indices, only Global Macro Commodities (+12.6%) and Global Macro Discretionary +(10.3%) and have bested Managed Futures (+10%) YTD.

Hedge fund performance and the case for diversification:

  • YTD, PivotalPath’s Hedge Fund Composite Index has eked out a small gain of 0.3% and continues to generate positive alpha of 1.2% and historically low beta of 0.18 relative to the S&P 500 (over the previous 12 months through March).

Dispersion and Divergence in Alpha generation:

  • While hedge fund return dispersion on a monthly basis remains at a healthy level just above its 10-year average, alpha dispersion over the last year across strategies is quite significant with Managed Futures +12% and the Equity Sector’s -15%.

  • For context, Equity Sector alpha is the lowest since July of 1999, while Managed Futures alpha is the highest since September of 2015



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