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DARIUS DALE: MACRO TEAM
TACTICAL ASSET CLASS ROTATION MODEL
JUNE 17, 2015
HEDGEYE 2
DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice to individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management’s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management’s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more detail please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at www.hedgeye.com.
LEGAL
HEDGEYE 3
The primary function of TACRM is to provide investors with an unparalleled degree of advanced market color across the liquid global macro investment universe (i.e. asset classes, regions,
countries, style factors and sectors).
TACRM is especially useful in alerting investors to critical breakouts and breakdowns at the individual factor exposure levels and collating those signals in a manner that significantly enhances one’s ability to identify existing or developing fundamental investment themes.
TACRM uses a robust proprietary quantitative methodology to transform a myriad of individual momentum signals at the factor exposure level into amalgamated risk management signals at the primary asset class level. This is especially helpful in quantifying the risk to increasing or
reducing one’s allocation to a particular asset class, at the margin(s).
WHY TACRM?
HEDGEYE 4
Multi-Factor Price, Volume and Volatility: TACRM uses volume-weighted average price (VWAP) data rather than single factor price data to infer the market’s conviction in a directional trend (or lack thereof).
Multi-Duration Short-term (1-3 months), Intermediate-term (3-6 months) and Long-term (6-12 months): TACRM applies a volatility overlay to account for the existence of developing and/or trending fundamental narratives. Specifically, if cross-asset volatility* is rising on a trending basis, TACRM records observations in the smaller of the two sample sizes (across each duration) and, conversely, if cross-asset volatility* is falling on a trending basis, TACRM records observations in the larger of the two sample sizes (across each duration).
Intuitive Z-Scores: For every liquid factor exposure in the world (roughly 200 in aggregate), TACRM computes a standalone Z-Score for each of the three aforementioned observation periods. The baseline assumption is that deviations from the mean in each sample of VWAP data represents the existence of positive or negative momentum. Specifically, a positive value on a specified date indicates that the associated price is n-standard deviations greater than the mean of the sample of observations in its respective trailing n-month period.
Easy To Interpret Standardization: For each date in the model, TACRM computes a simple average of the three aforementioned Z-Scores for each factor exposure. This composite Z-Score is the VAMDMI metric that TACRM analyzes in various manners to produce actionable risk management signals. Moreover, because TACRM’s VAMDMI metric uses a Z-Score methodology to transform VWAP data, it’s signals are agnostic to an individual factor exposure’s historical beta and volatility – thus effectively normalizing the degree to which investors in different asset classes are observing momentum.
TACRM = MULTI-FACTOR, MULTI-DURATION OUR VOLATILITY-ADJUSTED MULTI-DURATION MOMENTUM INDICATOR (VAMDMI) METRIC IS THE KEY DIFFERENTIATOR BETWEEN TACRM AND OTHER QUANTITATIVE RISK MANAGEMENT TOOLS. SPECIFICALLY, THIS CALCULATION OF MOMENTUM COMBINES MULTIPLE FACTORS ACROSS MULTIPLE DURATIONS AND DISPLAYS THE OUTPUT IN A MANNER THAT IS BOTH INTUITIVE AND EASY TO INTERPRET.
*BANK OF AMERICA/MERRILL LYNCH GLOBAL FINANCIAL STRESS INDEX
TOP-DOWN RISK MANAGEMENT SIGNALS
HEDGEYE 6
SUMMARY TABLE KEY TAKEAWAY: IS THE RECENT BULLISH-TO-BEARISH REVERSAL IN EMERGING MARKET EQUITIES A SIGNAL THAT THE COUNTER-TREND BOUNCE IN REFLATION ASSETS IS PETERING OUT? WHILE TOO EARLY TOO TELL, IT IS THE MOST NOTEWORTHY NEW SIGNAL FOR INVESTORS TO CONSIDER IN THE CONTEXT OF WHAT HAD BEEN A DEVASTATING REFLATION TRADE FOR GLOBAL FIXED INCOME MARKETS. ALTERNATIVELY, IT COULD BE CONFIRMATION OF THE RECENT BULLISH-TO-BEARISH REVERSAL IN DOMESTIC FIXED INCOME, CREDIT AND EQUITY INCOME PLAYS THAT MAY BE A SIGNAL OF A LOOMING POLICY MISTAKE BY THE FEDERAL RESERVE. ALL TOLD, GLOBAL MACRO MARKETS REMAIN CHOPPY AND DIRECTIONLESS, WHICH MAY BE WHY THE HFRX MACRO/CTA INDEX IS DOWN -4.6% SINCE PEAKING IN MID-MARCH.
DATA SOURCE: BLOOMBERG
HEDGEYE 7
U.S. EQUITIES
DATA SOURCE: BLOOMBERG
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
0
1
2
3
4
5
6
7
8
9
U.S. Equities - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 67.6%)
U.S. Equities - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -17.9%)
S&P 500 Index (Current Signal: INCREASE Exposure)
HEDGEYE 8
INTERNATIONAL EQUITIES
DATA SOURCE: BLOOMBERG
900
1,100
1,300
1,500
1,700
1,900
2,100
2,300
0
1
2
3
4
5
6
7
8
9
International Equities - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 33.8%)
International Equities - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -31.2%)
MSCI World Excluding United States Index (Current Signal: INCREASE Exposure)
HEDGEYE 9
EMERGING MARKET EQUITIES
DATA SOURCE: BLOOMBERG
400
500
600
700
800
900
1,000
1,100
1,200
1,300
0
1
2
3
4
5
6
7
8
9
Emerging Market Equities - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 18.2%)
Emerging Market Equities - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -17%)
MSCI Emerging Markets Index (Current Signal: DECREASE Exposure)
HEDGEYE 10
DOMESTIC FIXED INCOME, CREDIT & EQUITY INCOME
DATA SOURCE: BLOOMBERG
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
0
1
2
3
4
5
6
7
8
9
Domestic Fixed Income, Credit and Equity Income Plays - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 25.6%)
Domestic Fixed Income, Credit and Equity Income Plays - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: 8.2%)
Barclays US Agg Total Return Value Unhedged USD (Current Signal: DECREASE Exposure)
HEDGEYE 11
FOREIGN EXCHANGE
DATA SOURCE: BLOOMBERG
20
21
22
23
24
25
26
27
28
29
30
0
1
2
3
4
5
6
7
8
9
Foreign Exchange - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 8%)
Foreign Exchange - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -25%)
PowerShares DB US Dollar Index Bearish Fund (Current Signal: INCREASE Exposure)
HEDGEYE 12
COMMODITIES
DATA SOURCE: BLOOMBERG
180
230
280
330
380
430
480
0
1
2
3
4
5
6
7
8
9
Commodities - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 33.5%)
Commodities - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -64.4%)
Thomson Reuters/CoreCommodity CRB Commodity Index (Current Signal: INCREASE Exposure)
HEDGEYE 13
INT’L FIXED INCOME, CREDIT & EQUITY INCOME
DATA SOURCE: BLOOMBERG
380
400
420
440
460
480
500
520
540
560
580
0
1
2
3
4
5
6
7
8
9
Int'l Fixed Income, Credit and Equity Income Plays (Unhedged) - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 19%)
Int'l Fixed Income, Credit and Equity Income Plays (Unhedged) - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: 7.2%)
JPM Global Aggregate Bond Index - Total Return Unhedged USD (Current Signal: DECREASE Exposure)
BOTTOM-UP RISK MANAGEMENT SIGNALS
HEDGEYE 15
SUMMARY TABLE
DATA SOURCE: BLOOMBERG
HEDGEYE 16
BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).
GLOBAL MACRO This chart highlights the top-10 and
bottom-10 Adjusted VAMDMI readings across the universe of liquid global macro factor exposures. This
snapshot is helpful to investors in two ways:
First, it consistently identifies which
markets are breaking out or breaking down by identifying where last price is within the context of a
multi-duration view of volume-weighted average price data, as well
as the directional deviation within that prism. For example, an Adjusted
VAMDMI reading of ≥ +1x would represent a factor exposure that is decidedly bullish across multiple
durations and getting more bullish on the margin. The opposite is true for Adjusted VAMDMI readings ≤ (1x).
Secondly, the composition of the top
and bottom Adjusted VAMDMI readings helps investors confirm
existing trends at the primary asset class level OR helps to
prospectively signal a bullish-to-bearish or bearish-to-bullish
rotation in any of the six primary asset classes tracked by TACRM.
DATA SOURCE: BLOOMBERG
1.75x
1.67x
1.59x
1.42x
1.42x
1.28x
1.24x
1.23x
1.20x
1.17x
-1.35x
-1.35x
-1.40x
-1.40x
-1.49x
-1.52x
-1.52x
-1.60x
-1.69x
-1.88x
-2.5x -1.5x -0.5x 0.5x 1.5x 2.5x
(NIB) iPath Dow Jones-AIG Cocoa Total Return Sub-Index ETN
(KRE) SPDR S&P Regional Banking ETF
(KIE) SPDR Insurance ETF
(UGA) United States Gasoline Fund
(STPP) iPath US Treasury Steepener ETN
(XLF) Financial Select Sector SPDR Fund
(IAI) iShares U.S. Broker-Dealers ETF
(FXB) CurrencyShares British Pound Sterling Trust
(IWM) iShares Russell 2000 ETF
(FXS) CurrencyShares Swedish Krone Trust
(LQD) iShares iBoxx $ Investment Grade Corporate Bond ETF
(EWY) iShares MSCI South Korea Capped ETF
(SGG) iPath Dow Jones AIG Sugar Total Return Sub-Index ETN
(ENZL) iShares MSCI New Zealand Capped ETF
(JNK) SPDR Barclays High Yield Bond ETF
(PALL) ETFS Physical Palladium Shares
(BNDX) Vangaurd Total International Bond Market ETF
(EIDO) iShares MSCI Indonesia ETF
(EMB) iShares JP Morgan USD Emerging Markets Bond ETF
(BKLN) Senior Loan Portfolio ETF
Global Macro Top/Bottom 10 Adjusted VAMDMI*** Rankings
***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
HEDGEYE 17
BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).
U.S. EQUITIES
This chart highlights the top-10 and bottom-10 Adjusted VAMDMI
readings across the universe of broadly investable U.S. equity sector
and style factor exposures. This snapshot is helpful to investors in
two ways:
First, it consistently identifies which sectors and/or style factors are
breaking out or breaking down by identifying where last price is within the context of a multi-duration view of volume-weighted average price
data, as well as the directional deviation within that prism. For example, an Adjusted VAMDMI
reading of ≥ +1x would represent a factor exposure that is decidedly
bullish across multiple durations and getting more bullish on the margin. The opposite is true for Adjusted
VAMDMI readings ≤ (1x).
Secondly, the composition of the top and bottom Adjusted VAMDMI
readings helps investors confirm or dispel existing fundamental
narratives OR prospectively signal new ones.
DATA SOURCE: BLOOMBERG
1.67x
1.59x
1.28x
1.24x
1.20x
1.11x
1.10x
1.06x
0.77x
0.71x
-0.40x
-0.40x
-0.55x
-0.73x
-0.95x
-1.00x
-1.02x
-1.19x
-1.21x
-1.29x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(KRE) SPDR S&P Regional Banking ETF
(KIE) SPDR Insurance ETF
(XLF) Financial Select Sector SPDR Fund
(IAI) iShares U.S. Broker-Dealers ETF
(IWM) iShares Russell 2000 ETF
(IWN) iShares Russell 2000 Value ETF
(IWO) iShares Russell 2000 Growth ETF
(XTL) SPDR S&P Telecom ETF
(VXX) iPath S&P 500 VIX Short-Term Futures ETN
(XLV) Health Care Select Sector SPDR Fund
(DIA) SPDR Dow Jones Industrial Average ETF Trust
(IWS) iShares Russell Mid-Cap Value ETF
(TAN) Guggenheim Solar ETF
(XLE) Energy Select Sector SPDR Fund
(USMV) iShares MSCI USA Minimum Volatility ETF
(XLI) Industrial Select Sector SPDR Fund
(XLP) Consumer Staples Select Sector SPDR Fund
(IYT) iShares Transportation Average ETF
(PFF) iShares US Preferred Stock ETF
(GDX) Market Vectors Gold Miners ETF
U.S. Equities Top/Bottom 10 Adjusted VAMDMI*** Rankings
***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
HEDGEYE 18
BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).
INTERNATIONAL EQUITIES
This chart highlights the top-10 and bottom-10 Adjusted VAMDMI
readings across the universe of broadly investable international
equity country and regional exposures. This snapshot is helpful
to investors in two ways:
First, it consistently identifies which countries and/or regions are
breaking out or breaking down by identifying where last price is within the context of a multi-duration view of volume-weighted average price
data, as well as the directional deviation within that prism. For example, an Adjusted VAMDMI
reading of ≥ +1x would represent a factor exposure that is decidedly
bullish across multiple durations and getting more bullish on the margin. The opposite is true for Adjusted
VAMDMI readings ≤ (1x).
Secondly, the composition of the top and bottom Adjusted VAMDMI
readings helps investors confirm or dispel existing fundamental
narratives OR prospectively signal new ones.
DATA SOURCE: BLOOMBERG
0.78x
0.67x
0.47x
0.43x
0.35x
0.19x
0.16x
-0.13x
-0.19x
-0.20x
-0.63x
-0.69x
-0.70x
-0.70x
-0.75x
-0.82x
-0.89x
-1.02x
-1.05x
-1.40x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(EIS) iShares MSCI Israel Capped ETF
(DXJS) WisdomTree Japan Hedged SmallCap Equity Fund
(EWUS) iShares MSCI United Kingdom Small-Cap ETF
(EIRL) iShares MSCI Ireland Capped ETF
(EWD) iShares MSCI Sweden ETF
(EWK) iShares MSCI Belgium Capped ETF
(DXJ) WisdomTree Japan Hedged Equity Fund
(EWU) iShares MSCI United Kingdom ETF
(EDEN) iShares MSCI Denmark Capped ETF
(EUFN) iShares MSCI Europe Financials ETF
(FILL) iShares MSCI Global Energy Producers ETF
(EWS) iShares MSCI Singapore ETF
(EWA) iShares MSCI Australia ETF
(EZU) iShares MSCI EMU ETF
(PGAL) Global X FTSE Portgual 20 ETF
(EWAS) iShares MSCI Australia Small-Cap ETF
(EFNL) iShares MSCI Finland Capped ETF
(EWG) iShares MSCI Germany ETF
(EWSS) iShares MSCI Singapore Small-Cap ETF
(ENZL) iShares MSCI New Zealand Capped ETF
International Equities Top/Bottom 10 Adjusted VAMDMI*** Rankings
***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
HEDGEYE 19
BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).
EMERGING MARKET EQUITIES
This chart highlights the top-10 and bottom-10 Adjusted VAMDMI
readings across the universe of broadly investable emerging market
equity country and regional exposures. This snapshot is helpful
to investors in two ways:
First, it consistently identifies which countries and/or regions are
breaking out or breaking down by identifying where last price is within the context of a multi-duration view of volume-weighted average price
data, as well as the directional deviation within that prism. For example, an Adjusted VAMDMI
reading of ≥ +1x would represent a factor exposure that is decidedly
bullish across multiple durations and getting more bullish on the margin. The opposite is true for Adjusted
VAMDMI readings ≤ (1x).
Secondly, the composition of the top and bottom Adjusted VAMDMI
readings helps investors confirm or dispel existing fundamental
narratives OR prospectively signal new ones.
DATA SOURCE: BLOOMBERG
0.83x
0.34x
0.05x
0.02x
-0.07x
-0.11x
-0.32x
-0.33x
-0.38x
-0.39x
-1.18x
-1.18x
-1.23x
-1.24x
-1.25x
-1.26x
-1.27x
-1.29x
-1.35x
-1.60x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(VNM) Market Vectors Vietnam ETF
(CAF) Morgan Stanley China A Share Fund Inc.
(UAE) iShares MSCI UAE Capped ETF
(RSX) Market Vectors Russia ETF
(EWZ) iShares MSCI Brazil Capped ETF
(ECNS) iShares MSCI China Small-Cap ETF
(EPOL) iShares MSCI Poland Capped ETF
(GML) SPDR S&P Emerging Latin America ETF
(CHIQ) Global X China Consumer ETF
(EWHS) iShares MSCI Hong Kong Small-Cap ETF
(AAXJ) iShares MSCI All Country Asia ex Japan ETF
(GAF) SPDR S&P Emerging Middle East & Africa ETF
(EZA) iShares MSCI South Africa ETF
(EGPT) Market Vectors Egypt Index ETF
(EPI) India Earnings Fund
(SMIN) iShares MSCI India Small-Cap ETF
(EPHE) iShares MSCI Philippines ETF
(EWM) iShares MSCI Malaysia ETF
(EWY) iShares MSCI South Korea Capped ETF
(EIDO) iShares MSCI Indonesia ETF
Emerging Market Equities Top/Bottom 10 Adjusted VAMDMI*** Rankings
***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
HEDGEYE 20
BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).
DOMESTIC FIXED INCOME, CREDIT & EQUITY INCOME
This chart highlights the top-5 and bottom-5 Adjusted VAMDMI
readings across the universe of broadly investable domestic fixed income, credit and equity income
exposures. This snapshot is helpful to investors in two ways:
First, it consistently identifies which
markets are breaking out or breaking down by identifying where last price is within the context of a
multi-duration view of volume-weighted average price data, as well
as the directional deviation within that prism. For example, an Adjusted
VAMDMI reading of ≥ +1x would represent a factor exposure that is decidedly bullish across multiple
durations and getting more bullish on the margin. The opposite is true for Adjusted VAMDMI readings ≤ (1x).
Secondly, the composition of the top
and bottom Adjusted VAMDMI readings helps investors confirm or
dispel existing fundamental narratives OR prospectively signal
new ones.
DATA SOURCE: BLOOMBERG
1.42x
-0.46x
-0.58x
-0.76x
-0.97x
-1.27x
-1.35x
-1.35x
-1.49x
-1.88x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(STPP) iPath US Treasury Steepener ETN
(TIP) iShares TIPS Bond ETF
(SHY) iShares 1-3 Year Treasury Bond ETF
(MUB) iShares National AMT-Free Muni Bond ETF
(AMLP) Alerian MLP ETF
(AGG) iShares Core US Aggregate Bond ETF
(FLAT) iPath US Treasury Flattener ETN
(LQD) iShares iBoxx $ Investment Grade Corporate Bond ETF
(JNK) SPDR Barclays High Yield Bond ETF
(BKLN) Senior Loan Portfolio ETF
Domestic Fixed Income, Credit and Equity Income Plays Top/Bottom 5 Adjusted VAMDMI*** Rankings
***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
HEDGEYE 21
BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).
FOREIGN EXCHANGE
This chart highlights the top-5 and bottom-5 Adjusted VAMDMI
readings across the universe of broadly investable currencies. This snapshot is helpful to investors in
two ways:
First, it consistently identifies which currencies are breaking out or
breaking down by identifying where last price is within the context of a
multi-duration view of volume-weighted average price data, as well
as the directional deviation within that prism. For example, an Adjusted
VAMDMI reading of ≥ +1x would represent a factor exposure that is decidedly bullish across multiple
durations and getting more bullish on the margin. The opposite is true for Adjusted VAMDMI readings ≤ (1x).
Secondly, the composition of the top
and bottom Adjusted VAMDMI readings helps investors confirm or
dispel existing fundamental narratives OR prospectively signal
new ones.
DATA SOURCE: BLOOMBERG
1.23x
1.17x
0.84x
0.65x
0.57x
-0.42x
-0.74x
-0.80x
-0.94x
-1.13x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(FXB) CurrencyShares British Pound Sterling Trust
(FXS) CurrencyShares Swedish Krone Trust
(CYB) WisdomTree Chinese Yuan Strategy Fund
(FXE) CurrencyShares Euro Trust
(UDN) Powershares DB US Dollar Index Bearish Fund
(CEW) WisdomTree Emerging Currency Fund
(UUP) PowerShares DB US Dollar Index Bullish Fund
(FXY) CurrencyShares Japanese Yen Trust
(ICN) WisdomTree Indian Rupee Strategy Fund
(AYT) iPath GEMS Asia 8 ETN
Foreign Exchange Top/Bottom 5 Adjusted VAMDMI*** Rankings
***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
HEDGEYE 22
BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).
COMMODITIES
This chart highlights the top-5 and bottom-5 Adjusted VAMDMI
readings across the universe of broadly investable commodity
markets. This snapshot is helpful to investors in two ways:
First, it consistently identifies which
commodities are breaking out or breaking down by identifying where last price is within the context of a
multi-duration view of volume-weighted average price data, as well
as the directional deviation within that prism. For example, an Adjusted
VAMDMI reading of ≥ +1x would represent a factor exposure that is decidedly bullish across multiple
durations and getting more bullish on the margin. The opposite is true for Adjusted VAMDMI readings ≤ (1x).
Secondly, the composition of the top
and bottom Adjusted VAMDMI readings helps investors confirm or
dispel existing fundamental narratives OR prospectively signal
new ones.
DATA SOURCE: BLOOMBERG
1.75x
1.42x
0.78x
0.78x
0.63x
-1.17x
-1.23x
-1.30x
-1.40x
-1.52x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(NIB) iPath Dow Jones-AIG Cocoa Total Return Sub-Index ETN
(UGA) United States Gasoline Fund
(OIL) iPath S&P GSCI Crude Oil Total Return ETN
(USO) United States Oil Fund LP
(UNG) United States Natural Gas Fund
(JJC) iPath Exchange Traded Notes Dow Jones-AIG Copper Total Return Sub-Index ETN Series A
(DBB) PowerShares DB Base Metals Fund
(FOIL) iPath Pure Beta Aluminum
(SGG) iPath Dow Jones AIG Sugar Total Return Sub-Index ETN
(PALL) ETFS Physical Palladium Shares
Commodities Top/Bottom 5 Adjusted VAMDMI*** Rankings
***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
HEDGEYE 23
BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).
INT’L FIXED INCOME, CREDIT & EQUITY INCOME
This chart highlights the top-5 and bottom-5 Adjusted VAMDMI
readings across the universe of broadly investable international fixed
income, credit and equity income exposures. This snapshot is helpful
to investors in two ways:
First, it consistently identifies which markets are breaking out or
breaking down by identifying where last price is within the context of a
multi-duration view of volume-weighted average price data, as well
as the directional deviation within that prism. For example, an Adjusted
VAMDMI reading of ≥ +1x would represent a factor exposure that is decidedly bullish across multiple
durations and getting more bullish on the margin. The opposite is true for Adjusted VAMDMI readings ≤ (1x).
Secondly, the composition of the top
and bottom Adjusted VAMDMI readings helps investors confirm or
dispel existing fundamental narratives OR prospectively signal
new ones.
DATA SOURCE: BLOOMBERG
0.16x
0.05x
0.04x
-0.40x
-0.51x
-0.94x
-1.00x
-1.02x
-1.52x
-1.69x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(BWZ) SPDR Barclays International Short-term Treasury Bond ETF
(IBND) SPDR Barclays International Investment Grade Bond ETF
(IHY) Market Vectors International High Yield Bond ETF
(WIP) SPDR DB International Government Inflation-Protected Bond ETF
(EMCB) WisdomTree Emerging Markets Corporate Bond Fund
(RWX) SPDR Dow Jones International Real Estate ETF
(ALD) WisdomTree Asia Local Debt Fund
(EMLC) Market Vectors Emerging Markets Local Currency Bond ETF
(BNDX) Vangaurd Total International Bond Market ETF
(EMB) iShares JP Morgan USD Emerging Markets Bond ETF
Int'l Fixed Income, Credit and Equity Yield Plays Top/Bottom 5 Adjusted VAMDMI*** Rankings
***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
BOTTOM-UP RISK MANAGEMENT BACKTESTS
HEDGEYE 25
AVERAGE RETURNS
DATA SOURCE: BLOOMBERG
1.0%
-1.2%
0.3%
-0.2%
-1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5%
Average 1-month Forward Return Average 3-months Forward Return
The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
Backtests extend to the start of 2008 across all the individual factor exposures comprising the model; ~20,000 observations in aggregate.
Adjusted VAMDMI readings ≤ (1x).
Adjusted VAMDMI readings ≥ +1x.
HEDGEYE 26
POSITIVE HIT RATE
DATA SOURCE: BLOOMBERG
59%
51%
56%
52%
46% 48% 50% 52% 54% 56% 58% 60%
Cumulative 1-month Forward Hit Rate Cumulative 3-months Forward Hit Rate
The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).
Backtests extend to the start of 2008 across all the individual factor exposures comprising the model; ~20,000 observations in aggregate.
Adjusted VAMDMI readings ≤ (1x). Adjusted VAMDMI readings ≥ +1x.
TRADING WITH TACRM
HEDGEYE 28
TACRM = MULTI-FACTOR, MULTI-DURATION
This chart is a summary snapshot of the price, volume and volatility signals TACRM employs for the
purposes of active risk management.
The sign of the black bars indicate whether the specific factor is
signaling BUY (positive reading), SELL (negative reading) or DO
NOTHING (reading of zero) – which in itself is a risk-managed decision. The charts on the following three slides detail how such signals are produced for each specific factor.
The blue line highlights today’s intraday high price, intraday low
price and last and/or closing price, in order from left to right.
The support and resistance levels
indicated by the green and red lines are a function of the 50-day EMA. Specifically, if last price > 50-day EMA, then support = 50-day EMA
and resistance = 50-day EMA + the largest spread between the closing price and the 50-day EMA over the
previous 50-day period. The inverse is true if last price < 50-day EMA.
DATA SOURCE: BLOOMBERG
2097.40
2082.10
2096.29
2064.72
2099.70
2040
2050
2060
2070
2080
2090
2100
2110
-2
-1
-1
0
1
1
2
Price Volume Volatility
Risk Management Decision-Tree: S&P 500 Index (SPX) Last Price Support Resistance
HEDGEYE 29
PRICE BACKTEST RESULTS
BUY SIGNAL: LAST PRICE IS GREATER THAN ITS TRAILING 50-DAY EXPONENTIAL MOVING AVERAGE. SELL SIGNAL: LAST PRICE IS LESS THAN ITS TRAILING 50-DAY EXPONENTIAL MOVING AVERAGE.
DATA SOURCE: BLOOMBERG
1,000
1,200
1,400
1,600
1,800
2,000
2,200
0
1
2
3
4
5
6
7
8
9
Buy S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 152.9%) Sell S&P 500 Index (Trailing 5yr Cumulative 1D % Change: -81.6%)
S&P 500 Index (SPX)
HEDGEYE 30
VOLUME BACKTEST RESULTS
BUY SIGNAL: THE RESPECTIVE TRAILING 3-WK TRENDS IN PRICE AND VOLUME ARE BOTH POSITIVE. SELL SIGNAL: THE TRAILING 3-WK TREND IN PRICE IS NEGATIVE WHILE THE TRAILING 3-WK TREND IN VOLUME IS POSITIVE.
DATA SOURCE: BLOOMBERG
1,000
1,200
1,400
1,600
1,800
2,000
2,200
0
1
2
3
4
5
6
7
8
9
Buy S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 7.9%) Sell S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 17.6%)
S&P 500 Index (SPX)
HEDGEYE 31
VOLATILITY BACKTEST RESULTS
BUY SIGNAL: THE TREND IN 3-DAY DOWNSIDE VOLATILITY (I.E. THE ANNUALIZED SQUARE ROOT OF SEMIVARIANCE) IS NEGATIVE ACROSS MULTIPLE DURATIONS (I.E. ON AT LEAST TWO OF THE FOLLOWING THREE DURATIONS: 100 DAYS, 150 DAYS AND 200 DAYS). SELL SIGNAL: THE TREND IN 3-DAY DOWNSIDE VOLATILITY IS POSITIVE ACROSS MULTIPLE DURATIONS.
DATA SOURCE: BLOOMBERG
1,000
1,200
1,400
1,600
1,800
2,000
2,200
0
1
2
3
4
5
6
7
8
9
Buy S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 45.6%) Sell S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 25.7%)
S&P 500 Index (SPX)
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