Welcome to the Monthly Summary

The Dynamic Alpha Macro Fund aims to outperform its benchmark by employing a dual-strategy approach. The fund combines a fundamental global macro strategy with a balanced portfolio of U.S. equities. This blend of non-correlated assets is designed to manage risk and generate what we refer to as “Dynamic Alpha.”


The portfolio is comprised of U.S. Equity ETFs, a global macro futures strategy, and short-term fixed income. The global macro strategy provides long/short exposure to over 40 diverse and non-correlated markets, including currencies, metals, energy, commodities, and financial indices.


We are committed to our shareholders, keeping you informed and ensuring our strategies align with the ever-evolving financial landscape. If you have any questions, feel free to contact us at info@DynamicWG.com.

PERFORMANCE METRICS


Performance as of 3/31/2024NAVOne
Month
Three
Month
Since
Inception*
Dynamic Alpha
Macro Fund
10.938.33%4.00%9.76%
S&P 500
TOTAL RETURN INDEX
3.22%10.56%15.72%
Morningstar Moderate
Target Risk Index
2.38%3.91%7.48%
 

* Fund inception was 7/31/2023.
Performance data shown represents past performance and is not a guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Updated performance information and daily net asset value per share (“NAV”) is available at no cost by calling toll-free 1-833-462-6433.

Dynamic Alpha Macro Fund PORTFOLIO OVERVIEW

Contributors


Long: Copper, Gold, Silver, and Strategic Equity Holdings
Short: None


Detractors


Long: 2-year Treasury Notes
Short: Coffee, and E-mini S&P 500


Current Positions


Long: 2-year Treasury Notes, Gold, Copper, and Strategic Equity Holdings
Short: None

Macro Observations and Market Analysis

Our global macro strategy performed extremely well in March. Combined with positive equity performance, this led to very strong performance for the fund (DYMIX).


If you have been following our monthly commentaries, you know that our overarching macro view over the past few months leans towards some economic headwinds ahead. One way we have realized this view is through long positions in gold. During January and February, we managed this position within our risk limits but stayed with this theme. March showed the merit of this investment thesis was sound as gold broke out to an all-time high. Silver, copper as well as our equity holdings also performed positively.


All of this helped DYMIX outperform for March. We continue to see the benefits of using diversified, uncorrelated markets in providing additional sources of alpha and help in creating a smoother investment experience for our investors. Read on for more details from our global macro manager.

What the Fed is doing

The U.S. economy is really two economies: the ‘haves’, who earn interest, and the ‘have-nots’, who must finance their autos and other goods. Our read on the Fed is that they are responding to the pain of the have-nots with Powell’s dovish commentary in March, sticking with three rate cuts despite many data points of sticky inflation in the 3-4% range. Furthermore, given the sheer amount of debt that the U.S. government must roll in the next couple of years amid 6-8% deficits, the Fed is certainly aware that holding rates at these levels (or raising them further to truly squash inflation) only exacerbates a slow-motion crisis where investors demand a higher premium to buy long-term debt.

We remain in the camp that the Fed ‘accommodates’ inflation over the next 5+ years due to the political constraints outlined above. We now live in a world where politics have changed 180 degrees from the past 40 years of Reagan/Thatcher neoliberalism; going forward, labor (i.e. workers) and full employment could be prioritized over capital. Higher inflation might be a release valve.

Topping process in equities

A natural trade idea derived from the above intro is to gauge and short the end of the recent, 15-year secular bull market in equities. U.S equity markets certainly look very much “end of cycle” to us. Tight money is slowly choking the bottom-half of the economy – both consumers and small-mid sized businesses – and full-time employment is decreasing. One of our favorite indicators for showing where we are economically is the hiring rate.

A detailed chart from BCA Research 2024 showing two key economic indicators: the U.S. job hires rate and the NFIB small business hiring plans over a period from 1990 to 2025. On the left y-axis, the U.S. job hires rate is represented by a black line and measured in percentage from 1.2% to 4.4%. On the right y-axis, the NFIB small business hiring plans are depicted by a green line and measured from -5% to 30%. Both metrics experience fluctuations, with notable dips during shaded recession periods. The chart provides insights that may influence market strategies, such as those employed by Dynamic Alpha Macro Fund (DYMIX), by highlighting trends in employment and small business confidence.
Source: BCA Research

Firms add W-2 employees during economic expansions and normally cut them during and just after recessions.

The chart above shows how this played out as noted during the 2001 and 2008 recessions. More recently, hiring has fallen for the past two years without a recession – this makes us ponder, “what gives?” Our guess is that the lingering, massive fiscal spending post-Covid has delayed – but not likely prevented – what we think is an impending, run-of-the-mill recession.

Layoffs of temp workers, shown in the bottom panel in the graph above, also track with previous recessionary periods.

Although the slowness of the current cycle has lulled everyone to sleep, now is perhaps the best time to be looking for short entry points in equities.

We remain in the camp that a totally normal 30-35% bear market in the broad stock indices lies ahead of us this year and into 2025. Although we took off our short equity position for risk management purposes in November 2023, we could add at some point a short equity position using the futures market.

Confused fundamentals for the shiny rock

Conventional wisdom holds that the gold market is set for a fall – a recent Bloomberg article makes the case that without Western ETF demand returning, the market could easily head much lower.

Graph titled 'Gold ETF Holdings Broke Ranks With Price,' sourced from Bloomberg. It tracks Gold ETF holdings in metric tons and the price of gold in dollars from 2018 to 2024. The left y-axis, labeled in metric tons, ranges from 2400 to 3800, and correlates with the line for Gold ETF holdings, which is marked as L1. The right y-axis is labeled in dollars, ranging from 1200 to 2200, and correlates with the line for the price of gold, labeled as R1. The lines move closely together until late 2021, after which Gold ETF holdings continue to rise while the gold price drops significantly. This divergence could be of interest to financial strategies such as those of Dynamic Alpha Macro Fund (DYMIX) in assessing the investment landscape for gold-related assets.

But this time is different. The fundamental demand driver of the gold bull market today is very different: central bank buying, both Eastern and Western; and Chinese retail purchases. The latter is quite misunderstood.

From 2004-2008, U.S. investors found ‘yield’ by buying collateralized debt obligations (CDO)-squared structures and other repackaging of lower rated mortgages into AAA rated subprime securities. These blew up spectacularly in 2008. Similarly, the Chinese retail investor has been finding ‘yield’ by buying wealth management products (WMPs) from banks that deliver 5-10% returns when their bank accounts only offer 1% returns. These WMPs are potentially poisoned chalices, investing in receivables from failed property developers (often exhibiting pyramid scheme features) relying on continued land sales and deposit inflows to pay existing policy holders, without having sustainable underlying cash flows.

The Chinese retail investor has gotten hit twice in recent years: first on their holdings of property (property is to the Chinese investor what stocks are to the U.S. investor – the anchor asset class of their paper wealth), and now on their fixed income yield products – what they viewed as “cash”.

China is going through the equivalent of a 2008-style deflationary adjustment – it’s just not going to show up in markets the way it did in the U.S. In a managed system like China, the government will put a floor under real estate. But the Chinese retail investor is not stupid. They can see the amount of money that has been created within the system and they realize they will be left holding losses in real terms by holding property and bank deposits.

A line graph comparing 'All The Gold In The World' in yellow and 'All the Money in China (M2)' in red from 1990 to after 2020, as estimated values in trillions of dollars. The graph shows a slow, steady increase in the value of all the gold, while China's M2 money supply shows a more rapid and significant increase, particularly after the year 2000, with the trend becoming even steeper post-2010. This economic data visualization, powered by Rose AI, may provide valuable insights for financial analysis in contexts such as the strategies implemented by Dynamic Alpha Macro Fund (DYMIX).
Source: Rose AI

The chart above is the one that counts. It’s not the chart of U.S. money supply vs gold. Nor is it the chart of U.S. real rates vs gold. Chinese money supply, the red line, will likely go a lot higher in order to paper over the embedded losses in the Chinese system. The Chinese retail investor is buying gold to obtain the lost yield from their WMP in the form of new ‘yield’ from an appreciating gold price.


Add to that incredible central bank buying (4x the lost demand from Western ETFs). Eastern demand is driving this gold bull market. Western demand will come later, at much higher prices, and will add fuel to what we expect will be a parabolic move in gold in a few years’ time. We remain long gold.

Portfolio in March

Our portfolio performed well in March, as two of our core themes – long gold and long copper – broke out of major ranges. We find pairing gold and copper particularly helpful from a diversification standpoint, as one is a hedge against monetary debasement while the other is correlated with global growth. There are times when both perform well simultaneously, as with the period 2003-2007, when a U.S dollar bear market and China’s industrialization propelled both higher. We believe we are entering another such multi-year period, albeit with somewhat different fundamental drivers.
Our 2-year Treasury note position continues to consolidate in a broad sideways range, dating back to late 2022. We reduced this position by roughly 2/3rd in February for risk management purposes, but we could add to this position in the future as the year progresses.

Finally, we closed a short position in coffee that we carried from late February: certified stocks of coffee have risen, and we believed that even a reduced surplus from the Brazilian crop would lead to a sharp decline in the price of coffee. Instead, the price of coffee began to break out of a 15-week triangle consolidation to the upside, hitting our risk limit. Risk management is part of every futures trade we make.

As always, we continue to be nimble. If the data and/or our views change, we can pivot our positioning and find other trades within the 40+ markets we have available. This is also why we maintain a strategic allocation to U.S. equities in our overall fund strategy, balancing a buy-and-hold approach with active global macro long/short positions.


OUR dynamic alpha macro fund LONG/SHORT INVESTMENT UNIVERSE

EQUITY INDICESENERGYMETALS
E-mini S&P 500
NASDAQ E-MINI
Nikkei 225
Russell 2000 e-mini
MSCI EAFE Index
MSCI EM Index
Crude oil
Natural gas
NY Harbor ULSD
RBOB Gasoline
Copper
Gold
Palladium
Platinum
Silver

INTEREST RATESCURRENCYAGRICULTURE
SOFR
2-year Treasury note
5-year Treasury note
10-year Treasury note
30-Year Treasury
Australian dollar
Brazilian Real
British pound
Canadian dollar
Euro
Japanese yen
Mexican peso
New Zealand dollar
Swiss Franc
Cocoa
Coffee
Corn
Cotton
Feeder cattle
Lean hogs
Live cattle
Soybean meal
Soybean oil
Soybeans
Sugar #11
Wheat

The list above is not all inclusive.


CONTACT INFORMATION for the Dynamic Alpha Macro Fund

If you’re an advisor or investor interested in learning more about the Dynamic Alpha Macro Fund, you can get in touch through the “Contact Us” page on their website at https://dynamicalphafunds.com/contact-us/. Alternatively, you can directly email your inquiries to info@dynamicalphafunds.com.

IMPORTANT RISK INFORMATION

Disclaimers:

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