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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.

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

All of this information can now be downloaded into an excel file, thereby enabling clients to take the data & add into their own analysis.

On each model page, simply click on “Manage Model” in the top right hand corner to access 1 year’s history of Qi’s macro datasets.

Qi’s data starts in January 2009 – a full history is available via the Qi API.

Qi looks at all factors in z-score terms & Friday’s Retail Sales / Industrial Production miss has prompted a sharp move lower. Growth had already slipped below trend but is now accelerating lower.

Many economic forecasters have a growth slowdown pencilled in for 2022 but, for most, that’s a Q2 event. The deceleration appears to be unfolding earlier & more aggressively.

At the same time the early 2022 bear move in bond markets has picked up renewed momentum.

Qi had already flagged the significance of this, but now the move in 10y US real yields, from local low to recent high, is a 3 standard deviation event. It is also the sixth biggest spike in real yields in z-score terms since 2009.

There is already a huge volume of analysis in mainstream media about this real rate move. Does it reflect an improving economic outlook, or a tightening of financial conditions? Are real yields the key determinant of speculative technology stocks & the broader Growth versus Value rotation?

One observation to the first point. The graph above shows US inflation expectations in z-score terms. After the Q4’21 inflation shock, expectations have reverted close to trend. As always there is a level versus rate of change argument: real yields are still deeply negative.

But, in impulse terms & on current patterns, these charts err towards tighter financial conditions into a slower economic cycle.

In terms of the implications for asset allocations, investors have two options. Read volumes of traditional research to reach a conclusion based exclusively on subjective opinions.

Or, add Qi’s machine-learning framework into your process to identify which stocks / sectors / assets have a positive relationship with real yields - independent of all other macro variables - versus those that suffer when real rates leg higher.