Updated: May 23
March was a volatile month, with the S&P 500 losing more than 4% to start, then roaring back to end up more than 3%. The latest rebound seems counterintuitive as it comes amidst worries over tighter monetary policy and geopolitical instability. The bond market is telling a different story as the treasury yield curve briefly inverted during the month. Bond investors appear to be worried that the Fed will cause a recession by aggressively tightening monetary policy in an attempt to quell heavily surging inflation.
During the month, the Eta strategy gained 2.8%, mildly lagging the S&P 500, which gained 3.6%. YTD, Eta has lost 1.1%, significantly outperforming the S&P 500, which has lost 4.9%. Since inception, Eta has continued to outperform the S&P 500 on both an absolute and risk-adjusted basis.
Our average exposure in March was 60%. That means for every $100 in your portfolio, $60 were invested in the stock market and $40 were kept in cash. This is because the AI system is determining that we are in a risk off environment (as opposed to risk on), which means it is more focused on reducing potential losses rather than maximizing gains. For example, on the last day of the month, the AI reduced exposure to 31%. Subsequently, the S&P 500 lost 1.57% that day whereas Eta only lost 0.64%, which illustrates good decision making on the AI’s part.
Looking forward, we believe the markets will remain volatile and without a clear long-term trend. Our AI system continues to monitor more than 100 daily data points (including macroeconomic data) for more than 10,000 stocks in order to maximize risk-adjusted returns.