top of page

Market Update and Model Portfolio Reviews 04/30/2023


By Dustin Latham, CFA, CAIA, CRPC

 

May 1, 2023

Market Update 2023-04-30.png

​DISCLOSURE (Click links for sources. If in print, sources available upon request). Calculations & Definitions available upon request. *Trailing returns as of 04/30/2023 and are annualized returns if over 1-Year.  See “Model Disclosure” page for important disclosures and information – Total Period Measured 12/31/2016 – 04/30/2023.  “Inception” refers to Inception to Date. Inception calculation assumes end of day market prices on 12/30/2016 for starting period values to calculate Inception to Date figures.  Performance presented net of highest advisory fee. Views and opinions are of Alternative Capitalis, LLC and are not intended as investment advice or recommendation(s). The results do not represent actual trading and actual results may significantly differ from the theoretical results presented. Past performance is no guarantee of future results.

Global Equities finished April up 1.30% adding to their yearly gains which are up 8.33% to date.  Domestic equities continued their recovery trade in April up 1.56% and up 9.17% year to date.  Emerging Markets were negative on the month by -0.50% and up 2.38% on the year.  The Treasury yield curve (interest rates) was tamer in April with the largest variations at the front and back (shortest and longest maturity) end of the curve. Most Domestic Investment Grade Bonds finished up 0.62%.  Although it is too soon to tell, markets are anticipating the Federal Reserve’s last interest rate hike of this tightening cycle when they release their decision on May 3rd.

Headline Economic & Market Data 2023-04-30.png

See, “Headline Economic & Market Data - Data Links” at end of report for more information about the data sources.

The early hours of the start of the month provided for another bank, First Republic Bank, failure which was amongst the list of banks troubled last month and by most measures the 2nd largest bank closure (failure) in history.  JPMorgan Chase Bank purchased the bank from the FDIC’s receivership.  We still see a wider ranging issue from deposit outflow persisting in April as we pushed through new all-time deposit drawdowns in absolute and relative terms for the banking industry.  This is even more so than we reported in our previous monthly update.  Economic data was mixed in April while earnings reports from the first quarter started to roll in with generally positive results for larger cap companies. Overall GDP Growth for the first quarter (preliminary) was lower than expected but still positive at an annualized rate of 1.1%. There’s a bit of chicken or the egg debate at the surface level data between businesses and consumers. The headline number does not tell the whole story as it relates to consumer buying power versus business posturing.  Business inventory's fell, possibly due to anticipation of a weaker consumer and economy, but stronger consumption led to a drawdown in inventories.  This sets up the potential for inflation persisting as lower inventory-supply (depending on the environment), along with a relentless consumer can create price pressures to the upside.  We cannot say that we are in a stagflationary environment, but slowing overall growth and a misread on the consumer could through a wrench into the supply picture.  The corporate earnings season has reminded us that companies are still able to pass on prices while managing margins within reason. The job market showed resiliency as the unemployment rate ticked slightly lower in March along with the number of job openings (from February), while the participation rate (those working or willing to work) also picked up.  Employment data is a lagging indicator but does play a meaningful role in Federal Reserve policy setting.  Business survey data on manufacturing showed yet another month of declines in activity pointing to weaker demand however hard data on durable goods orders picked up in March putting some negative sentiment on hold.  The main headline inflation measure showed signs of cooling as the rate of price increases slowed month on month in March.  Inflation data is conflicted by the inventory rundown in the first quarter GDP, however, and there’s chance for a self-fulfilling supply glut repeat if business continue to pull back in anticipation of a recession. Retail sales data softened in March while consumer survey sentiment smidge’d higher on the month again conflicting positive and negative narratives on the direction of the economy.  

​

Housing market data continued to confuse as pending home sales ticked lower in March while new home starts were revised lower along with building permits.  Home prices nationally have not tumbled as some may have predicted and we still see the supply (or lack thereof) keeping prices elevated while mortgage rates remain higher.  A sign of tighter (and tightening) lending standards is the larger the usual spread between conventional 30-year mortgage rates and the 10-year Treasury Yield (rate).   The next Federal Reserve monetary policy decision is scheduled for May 3, and as of this writing the sentiment is for another interest rate hike of 0.25% to 5.25%.

 

With mixed economic data, and respectable corporate earnings (and for the most part revenues) to date in the Mega Cap companies, we’re still trying to blend in the overall trajectory of risk assets as history cautions optimism, and our textbooks school us on slowing growth in this environment. This year's large cap index returns have been primarily driven by just a handful of names.  On the year, eight names have carried over 75% of the positive returns in the equity weighting of the Domestic Index we benchmark our model strategies to.  The names leading the way are mostly recovery returns after struggling in 2022. 

 

The Federal Reserve will still have to dance around the elephant in the room which is how do you slow demand, therefore cooling prices, without cutting off economic growth.  Although a technical explanation is productivity gains could produce a soft landing, which could also more simply be explained as asking for more volume of a job, without raising prices.  Although we can almost always count on productivity improvements overtime, this does not happen overnight, and nor can it match the pace of the broad borrowing restrictions unfolding from the Federal Reserve. So, the narrative is a grammatically long and incorrect sentence which is that the economic data is mixed with some data showing signs of slowing, other data showing signs of inflation persisting in part because consumers continue to spend, while supply is mistakenly constrained in expectation of a recession, and employers are still trying to fill jobs at a slower pace, job market remains strong, lending standards have tightened, and home prices are showing signs of bottoming if not rising in some markets.   Also challenging is that markets broadly speaking are not euphoric relative to history and whether it is credit spreads including high yield, or traditional price multiples, we’re not at nosebleed levels.  It is entirely possibly that we muddle along and continue to have an economy that has varying industries rebounding and contracting as we would expect in most environments.  This could drag us back into the market more aggressively and/or selectively depending on the circumstances.  It is hard to be contrarian at this point because recession sentiment is so broad and that call aligns with an economy that is past full employment, coupled with gridlock from a fiscal standpoint and tightening from a monetary stance.  Mixed data might still be favored well in the near term but ultimately, we’re trying to thread a needle with a rope, and that is too big a solution for the issue it creates.  For now, we continue to maintain a very defensive position to “Risk Off” appreciating the risk we hold is that of missing out to the upside, relative to the downside.  

​

All of the models were positive on the month however all underperformed their Global and Domestic benchmarks.  With the exception of the long Japanese Yen to U.S. Dollar exposure, all of our results were positive on the allocation weightings.  We used the relative backup in interest rates in the second week of April to add to our 7-10 year Treasury exposure as we maintain appetite for longer duration when we see a backup in yields.  Our cash alternative exposures in three month or less to maturity Treasury Bill exposures are currently pricing in the highest yield of our asset allocation however this is indented to be used as an opportunistic sleeve.  Depending on the inflation measure, this starts to get us close to a real positive yield after adjusting for inflation.  If our view is correct, by the time there is a reasonable real yield in the risk-free rate, other asset classes will be priced far more attractively.  On an unannualized basis, the yield pickup feels almost nonmaterial however we want to be practical that markets can hold onto a theme for a while before another reality sets in.  

Asset Allocation Positioning and Model Changes for Month Ended 04/30/2023

Model Adjustments 2023-04-30.png
Risk Off Positioning 2023-04-30.png

DISCLOSURE (Click links for sources. If in print, sources available upon request). Calculations & Definitions available upon request. Investment Grade Bonds measured by the S&P U.S. Aggregate Bond Index. S&P 500 Total Return Index**. *Trailing returns as of 04/30/2023 and are annualized returns if over 1-Year.  See “Model Disclosure” page for important disclosures and information – Total Period Measured 12/31/2016 – 04/30/2023.  “Inception” refers to Inception to Date. Inception calculation assumes end of day market prices on 12/30/2016 for starting period values to calculate Inception to Date figures.  Performance presented net of highest advisory fee. Views and opinions are of Alternative Capitalis, LLC and are not intended as investment advice or recommendation(s). The results do not represent actual trading and actual results may significantly differ from the theoretical results presented. Past performance is no guarantee of future results.

Headline Economic & Market Data - Data Links

Disclosure WARRANTIES & DISCLAIMERS

There are no warranties implied. Alternative Capitalis, LLC (“RIA Firm”) is a registered investment adviser located in Massachusetts. Alternative Capitalis, LLC may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Alternative Capitalis, LLC’s presentation is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of Alternative Capitalis, LLC’s presentation should not be construed by any consumer and/or prospective client as Alternative Capitalis, LLC’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the presentation. Any subsequent, direct communication by Alternative Capitalis, LLC with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Alternative Capitalis, LLC, please contact the state securities regulators for those states in which Alternative Capitalis, LLC maintains a registration filing. A copy of Alternative Capitalis, LLC’s current written disclosure statement discussing Alternative Capitalis, LLC’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Alternative Capitalis, LLC upon written request. Alternative Capitalis, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Alternative Capitalis, LLC’s presentation or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. This presentation and information are provided for guidance and information purposes only. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. This presentation and information are not intended to provide investment, tax, or legal advice.

Disclosure

Alternative Capitalis, LLC is a registered investment adviser. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. *101 Federal Street, Suite 1956A, Boston, MA 02210 is Alternative Capitalis, LLC’s client facing address. All books, records, receipts, correspondence (mailing address) and day to day operations are located at 1565 West St, Wrentham, MA 02093. For more information, please visit https://www.altcapitalis.com/disclosure and https://www.altcapitalis.com/fee-table-for-services.

​

Model Performance Disclosure: The performance shown represents only the results of Alternative Capitalis, LLC’s model portfolios for the relevant time period and do not represent the results of actual trading of investor assets.  Model portfolio performance is the result of the application of the Alternative Capitalis, LLC’s proprietary investment process.  Model performance has inherent limitations. The results are theoretical and do not reflect any investor’s actual experience with owning, trading or managing an actual investment account. Thus, the performance shown does not reflect the impact that material economic and market factors had or might have had on decision making if actual investor money had been managed. Model results are based on discretionary trading that are not purely quantitative or rules based.  Model portfolio performance is shown net of the model advisory fee of 1.25%, the highest fee charged by Alternative Capitalis, LLC.  This reflects a change from Alternative Capitalis, LLC highest fee charged to a client(s) account from 1% to 1.25% annually.  April 1, 2018 model performance to most recent date presented adjusts for the higher 1.25% annual fee. Model portfolio performance is shown net of the sample trading costs based on our at the time Custodian’s, TD Ameritrade Institutional, trading costs. Performance does not reflect the deduction of other fees or expenses, including but not limited to brokerage fees, custodial fees and fees and expenses charged by mutual funds and other investment companies. Performance results shown include the reinvestment of dividends and interest on cash balances where applicable. The data used to calculate the model performance was obtained from sources deemed reliable and then organized and presented by Alternative Capitalis, LLC.   The performance calculations have not been audited by any third party. Actual performance of client portfolios may differ materially due to the timing related to additional client deposits or withdrawals and the actual deployment and investment of a client portfolio, the reinvestment of dividends, the length of time various positions are held, the client’s objectives and restrictions, and fees and expenses incurred by any specific individual portfolio. The performance calculations are based on a hypothetical investment of $100,000 for both the model and benchmarks presented.

​

Removal of Certain Benchmark Fees as of January 31, 2023: This will not impact how the hypothetical returns are presented for the Model Performance Returns.  Benchmark performance calculations for reports generated prior to January 31, 2023, were inclusive of the highest possible advisory fee charged to any client(s) account, 1.25% annually.  This reduced the total return of the investable benchmark by an annualized rate of 1.25%.  Effective January 31, 2023, the benchmarks no longer include the assumption of an advisory fee, and therefore the benchmark returns are no longer reduced by an advisory fee as of the trailing hypothetical results starting January 31, 2023, and thereafter.  This means that reports on and after January 31, 2023, will report hypothetical benchmarks without the advisory fee included.  The benchmarks trailing results presented on and after January 31, 2023, that previously included this hypothetical fee are now reported with advisory fees of 0.00% assumed.  Month end reports, for example on December 31, 2022, will not be updated to restate this difference of removal of hypothetical advisory fees on the benchmarks.  Performance presentation of rolling periods for as of dates on and after January 31, 2023, will backfill benchmark performance as if there were never an additional 1.25% annually deducted from the benchmarks.  This will otherwise, if all periods were restated prior to January 31, 2023, cause the benchmarks to produce better results by an approximate annualized 1.25%. 

​

Domestic Benchmarks: The Model performance results shown are compared to the performance of two series of hypothetical, albeit directly investable, benchmarks which we refer to as Domestic Benchmarks and Global Benchmarks.  The Domestic Benchmark is a blended ETF (Exchange-Traded-Fund) portfolio comprised of the following two ETF’s symbols, SPY & AGG, and are described below.  The benchmarks used are investable ETFs, presented using hypothetical results.  The ETF symbol SPY (SPDR® S&P 500® ETF Trust) which seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index (the “Index”).  Visit https://us.spdrs.com/en/etf/spdr-sp-500-etf-SPY for more information about the ETF. The S&P 500® Index results do not reflect fees and expenses and you typically cannot invest in an index.  The ETF symbol AGG (iShares Core U.S. Aggregate Bond ETF). The iShares Core U.S. Aggregate Bond ETF seeks to track the investment results of an index composed of the total U.S. investment-grade bond market. (the “Index”). Visit https://www.ishares.com/us/products/239458/ishares-core-total-us-bond-market-etf for more information about the ETF. The index composed of the total U.S. investment-grade bond market results do not reflect fees and expenses and you typically cannot invest in an index.  The benchmark is blended representing a weighting of a percentage (%) to SPY and percentage (%) to AGG based on the respective model weights further below.  The benchmarks are set to rebalance at each year end.  Except for year end, and unless otherwise indicated, the benchmarks are not rebalanced to maintain their original weighting over the period measured.  Instead, they are comprised of the starting allocation of each respective trailing hypothetical result presented and will shift given the prevailing market environment over the period measured.

​

Domestic Benchmark Return Comparison: To benchmark the results, the ETF (exchange-traded-fund) symbol SPY (SPDR® S&P 500® ETF Trust) which seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index (the “Index”).  The S&P 500 was chosen as it is generally well recognized as an indicator or representation of the stock market in general and includes a cross section of equity holdings.  In addition, the ETF symbol AGG was chosen as a benchmark. The iShares Core U.S. Aggregate Bond ETF seeks to track the investment results of an index composed of the total U.S. investment-grade bond market.  The total U.S. investment-grade bond market was chosen as it is generally well recognized as an indicator or representation of the bond market in general and includes a cross section of debt holdings. For each respective model benchmark the performance measurement weightings are as follows to SPY / AGG %: 20/80, 30/70, 40/60, 50/50, 60/40, 70/30, 80/20, 90/10 % respectively for Ultra Conservative, Conservative, Moderate, Balanced, Growth & Income, Growth, Aggressive, Ultra Aggressive.

​

Global Benchmarks: The Model performance results shown are compared to the performance of two series of hypothetical, albeit directly investable, benchmarks which we refer to as Domestic Benchmarks and Global Benchmarks.  The Global Benchmark is a blended ETF (exchange-traded-fund) portfolio comprised of the following three ETF’s symbols, VT, BNDX & BND, which is described below.  The benchmarks used are investable ETFs, presented using hypothetical results.  The ETF symbol BNDX (Vanguard Total International Bond ETF) attempts to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). Visit https://investor.vanguard.com/etf/profile/BNDX for more information about the ETF. The ETF symbol VT (Vanguard Total World Stock ETF) seeks to track the performance of the FTSE Global All Cap Index, which covers both well-established and still-developing markets.  Visit https://investor.vanguard.com/etf/profile/VT for more information about the ETF. The ETF symbol BND (Vanguard Total Bond Market ETF) attempts to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index and attempted to track the Bloomberg Barclays U.S. Aggregate Bond Index through December 31, 2009. Visit https://investor.vanguard.com/etf/profile/BND for more information about the ETF.  The benchmark is blended representing a weighting of a percentage (%) to BND, percentage (%) to VT, and percentage (%) to BNDX based on the respective model weights further below. The benchmarks are rebalanced over periods that include a calendar year end date, on the calendar year end date, to their original weighting over the period measured.  The Benchmarks are comprised of the starting allocation and will shift given the prevailing market environment over the period measured. 

​

Global Benchmark Return Comparison: To benchmark the results, the ETF symbol BNDX (Vanguard Total International Bond ETF) attempts to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). The Vanguard Total International Bond ETF was chosen as it is generally well recognized as an indicator or representation of the global bond market, ex-U.S. bonds, and tracks an investment-grade, non-USD denominated bond index, hedged against currency fluctuations for U.S. investors.  The ETF symbol VT (Vanguard Total World Stock ETF) seeks to track the performance of the FTSE Global All Cap Index, which covers both well-established and still-developing markets. The Vanguard Total World Stock ETF was chosen as it is generally well recognized as an indicator or representation of the global stock market and tracks a market-cap-weighted index of global stocks covering approximately 98% of the domestic and emerging market capitalization. The ETF symbol BND (Vanguard Total Bond Market ETF) attempts to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index and attempted to track the Bloomberg Barclays U.S. Aggregate Bond Index through December 31, 2009. The Vanguard Total Bond Market ETF was chosen as it is generally well recognized as an indicator or representation of the U.S. Domestic bond market, and tracks a broad, market-value-weighted index of U.S. dollar-denominated, investment-grade, taxable, fixed-income securities with maturities of at least one year. For each respective model benchmark the performance measurement weightings are as follows to BND/VT/BNDX %: 66/20/14, 57.8/30/12.3, 49.5/40/10.5, 41.2/50/8.8, 33/60/7, 24.7/70/5.3, 16.5/80/3.5 and 8.2/90/1.8 % respectively for the Ultra Conservative, Conservative, Moderate, Balanced, Growth & Income, Growth, Aggressive and Ultra Aggressive Global Benchmarks.

​

OPTIONS TRADING RISK DISCLOSURE: Options Trading – Both the purchase and writing (selling) of options contracts – involves a significant degree of risk not suitable for all investors.  Investors should carefully consider the inherent risks and financial obligations associated with options trading as further detailed in the Options Clearing Corporate booklet “Characteristics and Risks of Standardized Options.”

 

The results do not represent actual trading and actual results may significantly differ from the theoretical results presented

​

​

bottom of page