Weekly Algorithm Review: 01/21/2023 to 01/27/2023

Algorithm Performance This Week

Base Algorithm: +3.69%
Overall Market: +3.38%
Variable Sector Neutral: +2.9%
Variable Market Neutral: +1.9%
Long Term Portfolio: +1.52%
Sector Neutral: +0.94%
Market Neutral: -0.22%

Performance Summary - Technicals

From an algorithmic perspective, this week was exactly what we want to see. Our base algorithm outperformed the portfolio we feed into it by more than 200 bps. Market neutral and sector neutral underperformed, but given how well the market as a whole did this week, that’s 100% to be expected. Even the variable algorithms fell right where we’d expect them, performance-wise. At the end of the week, they were in between the base algorithm and their respective hedged algorithm. All in all, this was a fairly strong week for technical analysis.

If I had to criticize the algorithm’s performance this week, it’s that its stellar performance can be largely attributed to only a few stocks. Comparing its return by ticker this week to the portfolio’s, we can see that the algorithm completely avoided a few of our biggest losers this week. LLY, RTX, AMGN, MRK: it didn’t even touch these. Had it not managed to dodge these 4, I might be telling a different story. This week is a definite win for us, but I would have liked if the victory could be more attributed to great performance across a larger number of stocks, rather than excellent performance on a relatively smaller number.

Performance Summary - Fundamentals (Written by Vladimir Kozinets - HK’s Head Investment Analyst)

Looking at the conference board leading economic indicator it's showing a recession in Q2 April/May 2023 on par with 2001 at least (average lead is 7-8 months and showed warning signal starting august 2022, 2+ months negative prints). It has a 100% hit rate at anticipating recessions in the past 50+ years when the index prints below -5% for 2+ months

Our long term portfolio is created with the purpose of preserving capital in a recession, and is expected to underperform the market if the market is in a recovery or expansion business cycle. The long term portfolio is similar to our slowdown portfolio of last year, but this year we are expecting a recession, and not a soft landing as of now, based on the leading indicators. The portfolio holds equities that are lower beta than the market and are large market cap value firms, in sectors and industries that are less risky than the overall market. We are also working on 1-3 month portfolios that capitalize on following the markets beliefs so that we can be winning even if the long term portfolio is down at the moment.

Misc. Data For The Week