Summer doldrums – Jun 23rd 2023

Markets welcomed the 1st day of summer with a sour tone as all major indices eked lower on the week, primarily driven by softer data out of China, suggesting their recovery may be slower than anticipated. Similar recessionary effects were stoked when the BoE surprised markets with a 50bp rate hike spreading fear through Europe and global economies with yet another flight to safety. Metals and commodities were under heavy selling pressures on these macro events with Gold only recently finding better support along with most fixed income instruments rallying across the board. The Panama Canal bottlenecks caused by low rainfalls along with domestic inventory draws were not enough to stabilize the fall in Crude prices which traded -5%, while LNG is closing 1.5% lower on the week. Summer seasonal effects continue to set in and are leading to further vol compression as markets coil into their ranges in stubbornly choppy trading conditions.

** Thoughts on RCG Portfolio Positioning
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** Dynamic Macro Strategy
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This strategy relies on historical data and quantitative techniques to detect statistical disparities and make predictions in global markets through liquid ETF’s.

“US markets are showing signs of complacency after the recent AI fueled rally in mega-tech names which are all heavy weighted constituents in most sector indexes. With the end of the quarter and semester only a week away we can expect to see index fund rebalancing adding pressure to these oversubscribed names, but simultaneously re-distributing capital to many non-participating companies. We have added tactical longs in IWM as the index trades at the lower end of its range and will benefit from this normalization.” – Nick Diaz

** Inflection Strategy
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The strategy takes positions in highly out of favor US equities which we believe are inflecting due to changing fundamentals/events.

“We remain overweight energy names in the face of a volatile oil price. We stress the importance of investing in strong cash flowing companies at low multiples in this high rate environment. Sector allocations and positioning this year have been opposite to 2022 with increased tech inflows vs increased energy outflows. We believe it’s setting up for a big rally in the 2H of this year” – Stefan Lingmerth

** Safe Haven Strategy
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This strategy protects capital during inflationary environments and seeks to maximize yield using fixed income instruments and defensive assets.

“While the FED awaits more data from the economy, we see other central banks taking further action in their monetary policy stances to strong arm inflation. We remain cautious and data dependent before further extending duration in the book. With the recent sell-off in metals we look to re-introduce precious metal exposures as we believe to be near the top of this USD rally and expect USD weakness to trend into any sign of FED pause or future rate cut rhetoric.” Nick Diaz