The Pivotal Point of View Commentary
➢ 2022 began much as 2021 ended, continuing trends experienced in Q4 2021, though with a more negative tone. With inflation remaining stubbornly high and potentially entrenched, commodities continued to add fuel to the fire, including a ~17% gain in WTI Crude and a 30% jump in Natural Gas.
➢ In reaction, the US 10 Year Treasury yield increased from 1.51 to 1.78; this paled in comparison to the jump in the US 2 Year Treasury yield, which increased from 0.74 to 1.16. Accordingly, the spread between the two flattened further to just 61bps.
➢ Outside of commodities and the value factor more generally, there were very few bright spots in January, as the significant equity selloff was broad across most sectors and geographies.
The rotation into value from growth continues:
➢ After value outperformed growth in 2021 for the first time since 2016, PivotalPath’s U.S. Cyclical Basket (a proprietary measure of value) outperformed our U.S. Growth Basket by 9.5% in January. This is the second largest spread dating back to January of 2000 with only February of 2021 experiencing a larger differential.
➢ Growth sectors such as technology and biotech saw significant losses in January along with small-caps. The Russell 2000 lost 9.6%in January, almost double the loss of the S&P 500, and the SPDR S&P Biotech ETF (XBI) lost 16.6%. PivotalPath’s Small-Cap Biotech Basket was down 20% for the month and the SaaS basket lost 10.1%.
➢ Meanwhile, the Energy Sector SPDR (XLE) gained 18.8% for the month and the Dow Jones Commodity Index rose 8.7%.
Hedge funds performed relatively well and should have met most expectations:
➢ The PivotalPath Composite Index, a broad measure of overall hedge fund performance, lost a modest 1.3% vs. the major indices as described above, though dispersion by strategy remained historically wide. PivotalPath’s Dispersion Indicator registered at 6.3% which is the third highest month since April of 2009.
➢ Systematic strategies including Macro, Managed Futures, and Equity Quant were able to capitalize on the flattening yield curve, rally in the energy complex, and other factor trends, all of which are trends that are at least a year in the making.
Multi-Strategy and Credit were slightly positive for the month and continue to generate top of class alpha:
➢ With heightened volatility, exemplified by the +40% rally in the VIX, Multi-Strategy managers performed well yet again, with the Index generating a gain of 0.5% while maintaining a near zero beta to the S&P.
➢ The Credit index was slightly positive for the month led by the Structured & MBS and Relative Value sub-strategies, both of which generated returns of ~1%.