Insights

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Topical observations from the Qi macro lens. Build your investment roadmap with the best-in-class quantitative analysis and global data.

04.08.2022

Global Energy Majors

Watchlists enable clients to focus in on a particular topic - in this instance the worlds' major energy companies.

In one glance ascertain:

03.08.2022

Qi Dashboards
- a case study for multi asset investors

This short 3 minute video provides an example of Qi dashboards. In this instance customised to show equity, government bond, credit, FX, commodity & crypto markets. A comprehensive overview for global multi-asset investors.

In one glance, investors can see where each asset class & each geographical region is priced relative to macro-warranted model value.

That means the asset classes that are leading or lagging relative to prevailing macro conditions becomes instantly apparent.

01.08.2022

How to measure a bear
market rally versus a genuine turn

The bottom is in, or another bear market rally? Probably the biggest question facing equity managers today.

To help answer that question, surely the very first step requires a firm understanding of what’s driven the squeeze higher thus far.

The chart below shows the attribution of Qi model value for the S&P500 over the last 2 weeks.

Over that time, macro-warranted fair value for SPX has increased 8.35%. The biggest driver of that has been credit. The tightening of credit spreads has had twice as much impact as the next beneficial factor move.

27.07.2022

How to cheat at macro

One of the reasons equity managers often ignore macro is because it feels too vague. The sense is it's less relevant to day-to-day investing, let alone day-to-day life. It’s also tricky to follow given its traditionally all about opinions & therefore requires refereeing to judge the ‘winner’.

Fair, but that’s why Qi provides a quantitative framework to help identify critical macro relationships.

Consider the chart below. It takes US mega cap tech stocks & breaks each one down to show the respective influence of different macro drivers.

Qi sensitivities show the percentage impact on stock price for a one standard deviation increase in that macro factor. Here we simply show the attribution of each factor & its contribution to Qi model value.

25.07.2022

Blending micro & macro
during earnings season

This week, 175 S&P500 companies release earnings. But Q2 GDP may herald a technical recession, the Fed will hike rates & further inflation data are also due.

There are so many moving parts, how is an equity manager supposed to keep up?

Qi’s RETINA™ is a pipeline of potential trade ideas. Amongst a list of tailored assets, it highlights when securities become divorced from macro fundamentals.

One current example is RSP, the Invesco ETF that tracks an equally weighted S&P500 index rather than a market-cap one.

RETINA is flagging that RSP is now 0.9 sigma (5.5%) rich to macro model value. Spot RSP has accelerated ahead of macro conditions & Qi’s Fair Value Gap is at the richest levels recorded in 2022.

20.07.2022

How to measure
Italian political risk

Marrying bottom up & top down analysis is hard enough. How are portfolio managers supposed to handicap political risk?

Instead of relying on the opinion of geopolitical strategists, the Qi framework uses financial securities to capture the markets’ current perceptions of the risk around certain political scenarios.

Asset swap spreads for peripheral EuroZone sovereigns like Italy, Spain & Greece can be used to measure the degree of stress markets are pricing in for highly indebted southern European economies.

Qi’s algorithm de-trends & vol adjusts each spread, & then runs Principal Component Regression to capture the independent sensitivity of any security to this factor.

In the chart below we look at European equity sectors & overlay sensitivity to peripheral spreads with aggregate macro valuations.

Sectors to the right of the vertical zero bound want Italian spreads to remain well behaved. The further to the right, the greater the sensitivity; i.e. the more vulnerable they are if BTP spreads blow wider.

Red dots above the horizontal zero bound are currently rich relative to overall macro fair value.

19.07.2022

Company fundamentals & a strong
Dollar - how to blend macro & micro

Last week we illustrated how Qi can help equity long/short managers identify when company fundamentals are more important than macro factors.

If nothing else, that makes Qi a valuable productivity tool. As we move through earnings season, stock pickers can concentrate their time & energy on the stocks currently being driven by idiosyncratic risks.

But in reality the bottom up & top down worlds often meet in a the middle. An example of where macro & company fundamentals collide is the US Dollar. With the Dollar at multi-year highs, where is currency strength an issue; & how to know whether it represents a tailwind or a headwind.

12.07.2022

How an equity PM achieved 4% outperformance using Qi macro sensitivities

An equity PM running a large cap, long only US equity portfolio started 2022 with some concerns. The PM was concerned about higher inflation pushing the Fed to hike rates aggressively and what this might do to financial conditions.

11.07.2022

How to pair fundamental &
quantitative equity investing

It’s a frustrating time for stock-pickers. Their bottom-up analysis of company fundamentals keeps being ‘polluted’ by macro events.

Qi empowers equity managers with the ability to differentiate between the stocks that are dominated by idiosyncratic risks, versus those that are a function of the macro environment.

Qi’s model confidence measure acts as a filter. A quick & easy way to spot where a stock is macro-driven, & potentially scale down risk. Thereby freeing up time & capital to allocate to stocks where your alpha edge will make the biggest difference.

07.07.2022

Proof! What Value
needs to outperform Growth

Not another piece of commentary opining on markets. Empirical proof of what’s driving Value versus Growth.

Attribution analysis defines what moves Qi macro-warranted fair value. In the case of US Value vs. Growth (using Vanguard ETFs VTV vs. VUG), Qi model value rose 34.9% from the start of the year to the May 24th high watermark for Value outperformance.

Spot VTV / VUG rallied 35.3% in that time. The market moved exactly as macro conditions dictated it should!

That simple statistic demonstrates the importance of the macro environment for equity managers, even when they think they are allocating on a style basis.

The chart below shows the breakdown of the VTV / VUG model move over that period.

04.08.2022

Global Energy Majors

Watchlists enable clients to focus in on a particular topic - in this instance the worlds' major energy companies.

In one glance ascertain:

which stocks are in macro regimes, & which are trading off idiosyncratic risks
identify potential trading opportunities - which names are rich or cheap versus prevailing macro conditions
charts which can help with your marketing / investor relations work

03.08.2022

Qi Dashboards
- a case study for multi asset investors

01.08.2022

How to measure a bear
market rally versus a genuine turn

The next 3 big tailwinds have come from inflation, real rates & European bond spreads, each contributing to around a 1% gain in model fair value.

Earnings are undoubtedly part of the puzzle, but macro currently explains 81% of S&P500 price action. Rising inflation expectations, lower real rates & tighter BTP spreads are critical.

Put another way, if equity managers aren’t watching the bond market they are blind to a big reason for July’s rally.

If the Fed endorse this easing of financial conditions, then the current macro regime will remain positive for equities.

Those who fear inflation has yet to peak, may wonder if the Fed really are happy to see the 2022 tightening of financial conditions start to unwind.

Qi macro attribution identifies what’s driving US equities. Adding this transparency into your framework means you start the process of forecasting H2 2022 performance from a far stronger position.

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27.07.2022

How to cheat at macro

In one glance you can identify key differences in macro drivers between the FAANG stocks.

Meta displays the biggest sensitivity to credit markets. Immediately equity PMs can see that if credit spreads resume widening, Meta is most vulnerable.

In contrast, it is noticeable that Google, Microsoft & Apple are significantly more reliant on real rates. If US financial conditions tighten more via rising real yields than credit, these names are - all else equal - more likely to suffer.

Apple is arguably the most interesting. It is less sensitive than most of its peers to Fed Quantitative Tightening, to credit spreads, to spikes in VIX. The current macro regime backs up the idea of it as an effective defensive play in troubled times.

Earnings season is a busy time with a raft of results requiring detailed analysis. Devoting hours trying to understand the macro picture can be a time sink.

But these are macro markets.

The conclusion should not be to ignore macro, but embrace a framework that utilises innovative AI in the back end, but delivers the analysis in quick, simple terms.

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25.07.2022

Blending micro & macro
during earnings season

Aside from crunching the numbers on single stocks, bottom-up analysis will be thinking about concentration risks.

There are fears that the big stocks by earnings contribution distort the overall earnings picture for the broader index. Put another way, that the earnings picture is worse outside of the biggest mega cap names.

Analysing company fundamentals during earnings season is a big drain on time. Fundamentally, Qi’s provides a low touch way to identify when stocks become divorced from macro.

RETINA™ is an efficient productivity tool to help blend micro & macro into one investment process.

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20.07.2022

How to measure
Italian political risk

Today, Mario Draghi addresses the Senate; tomorrow the ECB meet. A new Draghi coalition government plus details of a credible anti—fragmentation tool would help assuage market fears about a blow-out in BTP spreads.

If you hold that view, European Chemicals look an interesting prospect. If your fear further political instability ahead, choose between EU Technology (highly sensitive) or Media (rich valuation).

Qi's Optimise Trade Selection function enables you to run this search across a range of assets. Instead of sectors, screen Euro Stoxx 600 single stocks for their sensitivity to BTP spreads. API users can go a step further & screen their own portfolio for shifts in the Italian political landscape.

#nextgenerationstresstests

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19.07.2022

Company fundamentals & a strong
Dollar - how to blend macro & micro

Earnings Spotflight Quadrants Usd Twi 18072022 1

The chart shows some of this week’s reporting companies. Firstly, it shows whether a stock is in a macro regime (those to the right of the 65% model confidence threshold) or being driven by company news. Then we’ve added sensitivity to the US Dollar on the y-axis.

Netflix is interesting. Just below our threshold for a regime but the most vulnerable to a strong Dollar. Note also, running the same chart but for sensitivity to interest rates, Netflix is also the most reliant on real yields not marching higher.

Most of this week’s reporters who are in macro regimes favour a weaker Dollar. The outlier is AT&T which also screens as 2.1% cheap to model fair value.

API users can run this on customised lists of assets – here the companies reporting earnings this week, but it could be equally applied to different portfolios or trading strategies.

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12.07.2022

How an equity PM achieved 4% outperformance using Qi macro sensitivities

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11.07.2022

How to pair fundamental &
quantitative equity investing

This will be a critical earnings season. Recession talk is everywhere, but arguably earnings forecasts are the one area yet to reflect the vibe shift.

The quadrant above looks at this week’s reporters & provides two perspectives. The vertical line is our 65% threshold for a macro regime.

Stocks to the right are macro-driven. Those to the left are where stock pickers should concentrate their energies.

Managers need to know that a bet on Blackrock is primarily a bet on credit spreads, VIX & real yields. A Fair Value Gap of 8.7% suggests BLK has discounted a fair degree of good news on these fronts.

But the majority of this week’s reporters are not macro plays. Earnings & forward guidance trump economics & financial conditions. Identify what regime a stock is in, then apply the relevant analysis, be it macro or micro.

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07.07.2022

Proof! What Value
needs to outperform Growth

Part of it was the notion of a cyclical bounce. Stronger economic growth & forward growth expectations plus higher commodities between them account for part of the rise in model value.

But financial conditions & measures of market stress were vastly more significant. Higher real rates & wider credit spreads were responsible for nearly twice as much in terms of Growth’s underperformance.

Probably less well known is the role played by European government bond markets. The widening in peripheral spreads as markets fretted about the ECB’s hawkish pivot was the biggest single driver of Value’s outperformance.

Qi model confidence is currently 73% - macro retains strong explanatory power. Equity managers choosing their tilt for H2 2022 need to be aware of the macro environment & how that determines the Value vs Growth asset allocation decision.

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