24.01.2022
Crowded longs
There are estimates that the average US equity long/short fund is down just over 4% year-to-date. However, the same source* puts crowded longs down 12.5% YTD – the worst start since 2010.
GVIP is an ETF that tracks the top stock picks of blue chip Hedge Funds. At the end of 2021 the fund factsheet suggested the “very important positions” had a tech heavy skew. Today, the long positions seem split across asset managers, banks, energy as well as tech.
It is, first-&-foremost, a bottom up stock picking strategy. But while holdings are selected according to company fundamentals, macro has become increasingly important. Qi’s GVIP model confidence is now 65% - it is back in a macro regime.
The valuation gap is at an extreme. GVIP is 2.7 sigma, 8.6% cheap to the macro environment. Critically though model fair value is trending lower. The prevailing macro conditions are deteriorating, it is just that spot has moved lower at a quicker pace.
It is, first-&-foremost, a bottom up stock picking strategy. But while holdings are selected according to company fundamentals, macro has become increasingly important. Qi’s GVIP model confidence is now 65% - it is back in a macro regime.
The valuation gap is at an extreme. GVIP is 2.7 sigma, 8.6% cheap to the macro environment. Critically though model fair value is trending lower. The prevailing macro conditions are deteriorating, it is just that spot has moved lower at a quicker pace.
The new regime has a distinct Goldilocks feel – reflation, easy monetary policy, healthy risk appetite. Given the Fed’s hawkish pivot in 2022, that explains the move lower in both spot & model value. The good news for the optimists is a lot of bad news is now priced.
But, as always, Qi would prefer to wait for macro-warranted model value to bottom out & inflect higher before taking advantage of the FVG signal.
* Source: Morgan Stanley Prime Brokerage
But, as always, Qi would prefer to wait for macro-warranted model value to bottom out & inflect higher before taking advantage of the FVG signal.
* Source: Morgan Stanley Prime Brokerage
