Welcome to the weekly MIG portfolio update! Here’s what’s important for our stocks and what PortCo has been up to this week.
Performance
Over the past two weeks...
Absolute return | 5.43% |
Outperformance over S&P 500 | 1.47% |
Outperformance over S&P 400 | 1.09% |
Annualized sharpe | 5.785 |
Investing activity
● On Friday, November 8, KFS passed with a 75% approval rating and the COPX pitch passed with an 83% approval rating. The KFS pitch focused on the company’s transformation to a decentralized holding model, diversification through an extended warranty unit, and low correlation and exposure to unstable sectors. The COPX pitch focused on the United States’ economic outlook, green energy drivers, and the gap in supply and demand. According to the voting results, the club has decided to buy COPX in the long term.
● Our models are running an 87% expected return for KFS and a 36% return for COPX. We have more confidence in the DCF for both tickers.
News & Sentiment
● Throughout the summer, PortCo has developed a sentiment analysis tool for our investments. The program looks at 100 recent news articles for each of our holdings and, using a language learning model (LLM), assigns a sentiment score for each ticker.
● Analyzing 100 recent news articles for both KFS and COPX, we see that both tickers have picked up a slightly positive sentiment over the past five days. We attribute that to the results of the presidential election and its potential influence on the companies.
● The energy, basic materials, and industrial sectors have seen significant volatility declines since the U.S. Presidential Elections, signaling a favorable outlook driven by market confidence. Conversely, communications and discretionary sectors have increased in volatility, reflecting a less optimistic market response. To navigate these shifts, our portfolio has increased exposure to positions in energy and materials while reevaluating positions in communication and discretionary sectors.
● In the graph below, the short-term outlook for sectors is based on beta-adjusted volatility levels in the post-election market. Volatility traders anticipate that the Trump administration will prompt a favorable outlook for Energy, Materials & Industrials and a less favorable outlook for Communications & Discretionary.
Risks
● The risk we are most concerned with this week is copper market volatility driven by the USD outlook. The return surface for our portfolio indicates significant upside exposure to copper price fluctuations, though it shows resilience in broader market stability. We believe increased sensitivity to emerging market growth is responsible for this asymmetry, and we have added a hedge in industrial metals to balance this risk.
● This graph highlights the portfolio's beta exposures across various sectors compared to a benchmark. It tells us where the portfolio is more or less sensitive to market and sector-specific risks. The tool helps pinpoint areas of overweight or underweight exposure that may influence the portfolio’s risk and return.
● For the last few weeks, the market has experienced unusual volatility patterns due to the presidential election, with changes driven by fiscal policy and trade expectations. The portfolio committee intends to monitor these volatility patterns closely and hold out until the market stabilizes before making any decisions based on this data.
Looking Ahead
● The Portfolio Committee recently finished developing a Python web scraping tool to keep the Portfolio Committee updated on key upcoming events. This tool focuses on two main areas: major macroeconomic events (like FOMC meetings, CPI releases, and jobs reports) and earnings announcements for companies in our portfolio (for example, Q3 results for GTX).
● In addition to this, the Portfolio Committee is also looking into developing a Multi-Asset Correlation Prediction. Given the volume in options trading has been expanding rapidly, and that the number of publicly traded ETFs has been expanding rapidly, looking into the combination of these 2 facts allows us to make correlation bets, which is currently an unpopular strategy. Predicting correlation would allow us to better allocate between equities in the MIG portfolio. This is likely to have a tangible impact on our fund performance. Moreover, correlation predictions can be used to construct relative value plays, where our own estimates differ substantially from the market-implied volatility of the ETF.
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