Weekly Algorithm Review: 04/01/2023 to 04/06/2023
Algorithm Performance This Week
Base Algorithm: +1.07%
Variable Market Neutral: +1.02%
Variable Sector Neutral: +0.93%
Long Term Portfolio: +0.92%
Sector Neutral: +0.87%
Market Neutral: +0.84%
Overall Market: +0.31%
For technicals, this week was a small win, mostly leaving us in the black. The main reason for this is Wednesday - the base algorithm outperformed our long term portfolio every other day this week. Let’s look a little into Wednesday’s performance.
The biggest sectors we misplayed on Wednesday were Utilities (under-allocation), Energy (under-allocation), Communication Services (over-allocation), and Consumer Cyclical (over-allocation). I think what this really came down to was market expectations. The night before, a Fed official stated that the Fed would need to raise rates over 5% and keep them there. This was the only day this week energies outperformed the market, the only day technologies didn’t at least match it, and the best day for utilities by more than 150 bps. Even though the market finished about where it started, it was a great day for a lot of our more defensive moves. It’s not a coincidence that largely defensive long term portfolio won by more than a percent on the day.
Ultimately, this all comes back to our previous discussions of the algorithm’s ability to predict macro trends. Our algorithm isn’t going to know in advance when the market changes directions. I can’t tell you when the recession is coming. But I can tell you that, even if the sandcastle doesn’t fall yet, there will be days when it looks like it’s dropping. In all likelihood, those aren’t going to be days where our algorithm does particularly well - though they’ll be great for our long-term portfolio. I want to remind everyone: practice your own due diligence. If you’re feeling negative on the market one day, don’t over-allocate into tech and consumer discretionary.
Wednesday technicals aside, I’m happy with our performance this week. Mostly off the strength of our long term analysis (shout out Vlad), we beat the market by more than 75 bps. Remember to practice due diligence, don’t take any positions you aren’t comfortable with.
Misc. Data For The Week
