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Weightless 60632
06.09.2022
How to outperform tighter financial conditions
Tighter financial conditions are a significant headwind for equities into year-end.

How can equity managers try to insulate themselves from macro shocks like wider credit spreads & higher real yields?

Qi factor sensitivities identify the stocks which are most vulnerable to tighter financial conditions, versus the ones that are comparatively resilient.

In the 3 weeks since the summer rally peaked & reversed lower, Qi’s pick of resilient stocks outperformed the most vulnerable by 7% & the S&P500 by 3%.
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Pexels Sam Willis 3934512
06.09.2022
Avoid macro "landmines"
- what if credit spreads widen?
US High Yield spreads have risen 100bp since the mid-August lows, & are now 50bp from the wides of 2022.

As the Fed have reiterated their intention to tighten financial conditions to fight inflation, fears about rising default rates & wider credit spreads have re-emerged as a key risk.

How can a bottom-up equity manager navigate such a scenario?

The first step is to identify which holdings within your portfolio are most exposed to stress in credit markets.

Qi’s Optimise trade selection tool can isolate the independent impact of US High Yield spreads on US single stocks. The chart below shows a sample of some of the S&P500 stocks currently in a macro regime with a range of sensitivity to credit spreads.
See more
Todd Trapani 11Hnchukldg Unsplash Copy
30.08.2022
Avoid macro "landmines"
- a case study for stock pickers
A recent Goldman Sachs study revealed GVIP – the ten most popular stock picks by HF managers – was the worst performing strategy year to date.

It is not that managers have suddenly lost the ability to pick winners. It is because macro “landmines” are ruining performance.

How is an equity manager busy analysing bottom-up company fundamentals supposed to insulate themselves from the huge array of macro crosswinds that plague financial markets currently?
See more
Raychel Sanner 0Pswkddfxii Unsplash
25.08.2022
Qi helps with
- macro event risk
President Powell’s speech at Jackson Hole dominates this week’s calendar. Traditional research opines on whether he’ll pivot towards 2023 rate cuts, give clues on the Fed’s approach to Quantitative Tightening or any number of macro scenarios.

Qi gives bottom-up focused equity investors an easy window into the macro world. The chart below shows three of the four factors in our “risk aversion” bucket. It includes VIX, VDAX & VXEEM all in z-score terms, i.e. how far each factor is from its long term average.

Over the summer, equity volatility declined in US, Europe & Emerging Markets. In all three cases the rally in stocks took vol below trend. The latest bout of nerves running into Jackson Hole has seen a modest pop higher, but the move has resulted in some interesting observations.
See more
Aaron Burden Nxt5Prob 7U Unsplash
10.08.2022
Integrating systematic signals into
a discretionary process - Gold
On one level Qi is a simple productivity tool.

Portfolio managers have multiple distractions competing for their time. Qi can quickly signal when a security is in a macro regime, when there is a valuation story.

It’s US CPI day & analysis around the inflation outlook will flow thick-&-fast. Qi has a few simple observations.
See more
Omega Nebula 11053 1920
08.08.2022
Macro in one chart
One of the problems trying to integrate macro into an equity manager’s investment process, is the subject itself. It can be tricky to follow & fit into one, easy story.

On the Qi portal the first chart you will see is the “Top 10 Macro Driver Shifts”. It shows the 10 biggest shifts in macro factors over the last week.

For time poor equity PMs it is an effective cheat sheet. Take today’s for example.
See more
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:
See more
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.
See more
Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
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.
See more
Weightless 60632
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.
See more
Close
Weightless 60632
06.09.2022
How to outperform tighter financial conditions
Tighter financial conditions are a significant headwind for equities into year-end.

How can equity managers try to insulate themselves from macro shocks like wider credit spreads & higher real yields?

Qi factor sensitivities identify the stocks which are most vulnerable to tighter financial conditions, versus the ones that are comparatively resilient.

In the 3 weeks since the summer rally peaked & reversed lower, Qi’s pick of resilient stocks outperformed the most vulnerable by 7% & the S&P500 by 3%.
See more
Image 57
Pexels Sam Willis 3934512
06.09.2022
Avoid macro "landmines"
- what if credit spreads widen?
US High Yield spreads have risen 100bp since the mid-August lows, & are now 50bp from the wides of 2022.

As the Fed have reiterated their intention to tighten financial conditions to fight inflation, fears about rising default rates & wider credit spreads have re-emerged as a key risk.

How can a bottom-up equity manager navigate such a scenario?

The first step is to identify which holdings within your portfolio are most exposed to stress in credit markets.

Qi’s Optimise trade selection tool can isolate the independent impact of US High Yield spreads on US single stocks. The chart below shows a sample of some of the S&P500 stocks currently in a macro regime with a range of sensitivity to credit spreads.
See more
Screenshot 2022 09 05 At 142641
Look at the cluster of green dots on the far left of the chart. These are the stocks with the greatest negative sensitivity - they are the most reliant on credit spreads staying tight.

Chipmakers Nvidia NVDA & Applied Materials AMAT, software firms Adobe ADBE & Salesforce CRM, but also First Republic Bank FRC, cosmetic giant Estee Lauder EL & Domino’s Pizza DPZ screen as those names most vulnerable should credit spreads re-visit the wides.

Which names lie at the other end of the spectrum? Activision Blizzard is an outlier – it has positive sensitivity to US High Yield.

Most of the focus on ATVI is on regulatory risk & its pending merger with Microsoft. But, from a macro perspective, it has the unique characteristic of being fine with wider credit spreads.

There are a handful of names – Marathon Oil MRO, T Mobile
TMUS, AT&T T, Loews L, Chubb CB – where the stock is comparatively indifferent to moves in the credit market.

Once a month screen your portfolio for sensitivity to US credit.

Then, shift allocations away from the names with the greatest credit exposure, to those with the least.

Adding in macro valuation could provide further value. Chipotle Mexican Grill CMG has the distinction of being vulnerable to wider credit spreads & it is 0.9 standard deviations (7.9%) rich to overall macro conditions.
Todd Trapani 11Hnchukldg Unsplash Copy
30.08.2022
Avoid macro "landmines"
- a case study for stock pickers
A recent Goldman Sachs study revealed GVIP – the ten most popular stock picks by HF managers – was the worst performing strategy year to date.

It is not that managers have suddenly lost the ability to pick winners. It is because macro “landmines” are ruining performance.

How is an equity manager busy analysing bottom-up company fundamentals supposed to insulate themselves from the huge array of macro crosswinds that plague financial markets currently?
See more
Raychel Sanner 0Pswkddfxii Unsplash
25.08.2022
Qi helps with
- macro event risk
President Powell’s speech at Jackson Hole dominates this week’s calendar. Traditional research opines on whether he’ll pivot towards 2023 rate cuts, give clues on the Fed’s approach to Quantitative Tightening or any number of macro scenarios.

Qi gives bottom-up focused equity investors an easy window into the macro world. The chart below shows three of the four factors in our “risk aversion” bucket. It includes VIX, VDAX & VXEEM all in z-score terms, i.e. how far each factor is from its long term average.

Over the summer, equity volatility declined in US, Europe & Emerging Markets. In all three cases the rally in stocks took vol below trend. The latest bout of nerves running into Jackson Hole has seen a modest pop higher, but the move has resulted in some interesting observations.
See more
Riskaversion
US vol is essentially back at trend; German vol is slightly below, while EM vol is one standard deviation below trend.

None suggest equity markets are particularly fearful as we head into Jackson Hole. If you fear a hawkish speech from Powell, Qi’s snapshot suggest volatility is not historically rich.

Aside from Jackson Hole, if you fear property market issues plus Zero Covid fall-out keeps the pressure on Chinese equities, this level of vol suggests VXEEM offers a potential hedge for global equities.

Similarly, amongst DM markets, if you fear the energy / income shock is first-&-foremost a headwind for European equities, hedging via VDAX looks interesting.

This info is accessible on the Qi portal’s landing page in the "Top 10 Macro Driver Shifts" chart. API users can get a longer history to gain still greater perspective.
Riskaversion2
Aaron Burden Nxt5Prob 7U Unsplash
10.08.2022
Integrating systematic signals into
a discretionary process - Gold
On one level Qi is a simple productivity tool.

Portfolio managers have multiple distractions competing for their time. Qi can quickly signal when a security is in a macro regime, when there is a valuation story.

It’s US CPI day & analysis around the inflation outlook will flow thick-&-fast. Qi has a few simple observations.
See more
Gold
Gold is back being a macro play. Model confidence is now 65%, our threshold for a new regime.

The new regime is diverse but gold’s role as an inflation hedge is evident with rising positive sensitivity to global inflation expectations.

Model fair value has stopped falling but is yet to display any new highs consistent with trend reversal. But spot has rallied of late & that has created a 0.7 standard deviation (2.8%) valuation gap.

API users can back-test the efficacy of Qi FVGs as a signal. From here to +1.25 sigma looks like a coin toss – hit rates of around 50%. For potential bears, history suggests waiting for valuation gaps of +1.5 sigma where the hit rate rises to 60%.

Three quick steps – check model confidence, identify FVG, back-test the efficacy of that signal.

In short, from a macro perspective, another upside inflation surprise & this doesn’t look the optimal entry level to buy gold as an inflation hedge.

It’s not the optimal sell level either but, at these valuations, risk-reward suggests a downside surprise hurts more.
Omega Nebula 11053 1920
08.08.2022
Macro in one chart
One of the problems trying to integrate macro into an equity manager’s investment process, is the subject itself. It can be tricky to follow & fit into one, easy story.

On the Qi portal the first chart you will see is the “Top 10 Macro Driver Shifts”. It shows the 10 biggest shifts in macro factors over the last week.

For time poor equity PMs it is an effective cheat sheet. Take today’s for example.
See more
The biggest shift last week was a positive move in US GDP growth. In z-score terms, Friday’s Payrolls report pushed tracking US growth higher by over one standard deviation. The move wasn’t as big, but European & Chinese GDP also enjoyed a decent bounce.

The next biggest moves came from US & European yield curves. Both experienced a sharp flattening.

Qi uses the 5s30s curve shape as a proxy for forward growth expectations. Yield curves typically steepen in a reflationary environment, flatten as markets worry about futures levels of growth.

And there you have today’s basic macro story summed up. The US labour market remains hot. But that increases fears of more aggressive Fed rate hikes, & that is pushing the bond market to flatten (invert) the yield curve & price in a 2023 recession.

Macro box ticked; time to move on with your bottom up analysis of company fundamentals.

And as an aside, note an improvement in Italian Sovereign Confidence also features. Given Moody’s downgrade to Italy’s rating outlook late on Friday, recent complacency here could be threatened.
Screenshot 2022 08 08 At 091406
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:
See more
  • 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
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.
See more
Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
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.
See more
Spx Attribution
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.
Weightless 60632
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.
See more
Bar Chart 25072022
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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