Dynamic Alpha Macro Fund (DYMIX) – April 2024 Overview

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 4/30/2024NAVOne
Month
Three
Month
Since
Inception*
Dynamic Alpha
Macro Fund
11.696.95%13.50%17.39%
S&P 500
TOTAL RETURN INDEX
-4.08%4.2911.00%
Morningstar Moderate
Target Risk Index
-3.14%0.78%4.10%
 

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%
Gross Expense Ratio is 1.99%.

* 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

Pie chart illustrating the Adaptive Trading Strategies in DYMIX for April 2024. The inner pie graph displays the overall strategy allocation: 47.3% to Global Macro, 19.1% to Cash, 10.4% to Growth Equities, 4.6% to Core Equities, and 18.7% to Dividend Equities. The outer circle graph breaks down the Global Macro allocation, showing specific investments in 2-Year Treasury (71.0%), Corn (5.1%), Copper (5.3%), Coffee (3.8%), and Feeder Cattle (1.90%). Descriptive text explains the strategic balancing of U.S. equities and global markets to optimize performance and manage risks.

Contributors


Long: Cooper, Gold, and Coffee
Short: E-Mini S&P 500


Detractors


Long: Corn, 2-Year Treasury Note, and Strategic equity holdings
Short: Feeder Cattle


Current Positions


Long: 2-year Treasury Note, Copper, Coffee, Corn, and Strategic Equity Holdings
Short: E-mini S&P 500, Feeder Cattle

Macro Observations and Market Analysis

Our global macro strategy performed very well in April, helping the fund significantly outperform the reported benchmarks, as noted above. Months like this may help emphasize the utilization of our fund within an overall portfolio. 

Last month we saw DYMIX outperform both the S&P 500 and the Morningstar Moderate benchmarks by over 5% in both cases, with stocks going up.  This month we continued to see outperformance of over 10% of both benchmarks, with stocks going down.  This is, by definition, non-correlation which helps to add diversification to an overall portfolio.  The fund continues to perform as designed.   Continue reading for more insights on what has led to this out performance.

Flip-flopping: something to be proud of

During the 2004 U.S. presidential campaign, George Bush’s team successfully painted rival John Kerry with the “flip-flopper” moniker, saddling Kerry with the image of a man who stands for nothing, will change his mind with the wind, and cannot be considered a leader. In politics, you do not want to be known as a flip-flopper.

In trading and investing, the opposite is true. When the facts change, you must as well. Throughout March we were short coffee. In early April we went long coffee. Here’s how our thinking evolved.

Mid-February: We noticed that coffee, having risen in price over the October-December time period, had moved into a tight sideways range for 9 weeks in what looked to be a bearish consolidation. In addition, large hedge funds held a significant long position in the front-month contract, a sign that we normally take in a contrarian fashion as potentially warning of a downward move to come – when everyone is on one side of the boat, often the market heads in the other direction. Finally, from a fundamental perspective, we were aware that Brazil’s surplus from the current crop year would be smaller than expected, but it would be a surplus nonetheless, and ideally wouldn’t derail lower coffee prices.

In addition, although there was news about heat damaging the Robusta coffee crop in Vietnam, the Arabica contract that we trade in our strategy didn’t budge, and we reasoned that there would be little to no spillover price action between the two types of coffee prices. For readers unfamiliar with the differences, Arabica coffee – grown in Brazil, central America, Ethiopia, and elsewhere – is the higher quality coffee that ultimately makes its way into the premium priced coffee sold through Starbucks, Dunkin Donuts, Nespresso, and elsewhere. The harsher Robusta beans, predominantly grown in Vietnam, are often mixed with some Arabica beans for bottom shelf, cheaper coffee. The two contracts are considered different products most of the time.

We initiated a short position in the May contract of coffee (KCK4) with a short-term time horizon. [Our short-term trades are normally a few months in duration, as opposed to longer-term ideas, which span at least a year and possibly multiple years.]

Late March: Our coffee trade started moving against us, and the nearly three-month consolidation now took on a bullish hue, leading us to close the short-term, short position in May coffee.

Early April: The coffee market began to rocket higher in the first few days of April. A little light went off in our heads and we immediately put on a long position in December coffee (KCZ4). When everyone is already long, and the market starts to really move with momentum, that tends to indicate that there is a real underlying driver for the move. We went as far out on the coffee curve as we could based on contract liquidity and established a long-term position with a potentially longer than 12-month hold time. As the month progressed, the news out of Vietnam worsened – drought was causing serious damage to the Robusta crop. The price differential between the Arabica and robusta crop widened to the largest spread in decades (the gap between the two lines in the chart below; note the space between the two series at the far right side) .

Robusta (white line; left scale) vs Arabica (blue line; right scale) prices

Bloomberg chart showing the price trends of Arabica (blue line) and Robusta (white line) coffee commodities from 2014 to 2024. The chart depicts the increasing price gap between the two markets, particularly evident from 2023 onwards, which demonstrates the relationship between these coffee markets.

Figure 1: Source Bloomberg

The coffee market has tightened to the point where physical traders are sourcing Arabica beans to make up for the Robusta shortfall.

As with all potentially great trades, you put the position on when you have 20% of the fundamentals figured out. You continue to research the fundamentals and add to your knowledge as real-time information is released while you hold your position. You liquidate a winning position when 80-90% of the fundamentals are crystal clear. Our working hypothesis is that a demand-pull bull market is occurring in Arabica coffee futures, with spillover demand from Robusta traders driving a major bull market in many people’s favorite morning beverage.  The comings quarters will either corroborate or invalidate this theory.

Metals to agriculture

Our strategy involves dialing up and dialing down our exposures dramatically, even when we have a strong fundamentally-driven investment viewpoint and plan to be long a particular market for several years.

A few times a year, we make meaningful changes to our portfolio, realigning our current positions with what we believe to be the best risk/reward trade-offs from a technical, fundamental, and sentiment perspective.

In April, we made one of these shifts, reducing a large position in metals and ramping up initial positions in the agriculture sector.

Portfolio changes

Gold

We have a bullish multi-year view on gold. Fiscal deficits in the United States are at levels normally seen during wars or during deep recessions, when fiscal policy acts in a counter-cyclical manner. However, the U.S economy has been in a non-recessionary boom period post the pandemic. Virtually no one in the West is hedging these unsustainable fiscal deficits by buying gold – yet. 

What’s driven gold higher is Chinese buying, by both central banks and the retail public. With local stock and real estate markets imploding, Chinese retail investors are looking to a timeless investment to protect what’s left of their savings. The central bank, meanwhile, is in a race against time to diversify away from U.S. Treasuries and into gold, with the lesson of the seizure of Russia’s euro and dollar-denominated reserves accelerating any plans emerging market central banks had to move slowly.

The above fundamental backdrop could be in place for years to come. Despite this, in April we closed out our gold position as the market traded close to the $2,400 price level. Markets have a natural ebb-and-flow. The sharp move higher from $2,100 to $2,400 caught many investors off-guard, caused many of them to chase the price higher, and created a backdrop of increased chatter about gold online and in the news. That’s how local, short-term highs are built. We could use the expected correction to rebuild our position at lower levels.

Copper

Our bullish posture on copper remains intact. Extremely low treatment charges at smelters indicate that raw concentrate (mine supply) is drying up. Inventories on exchange are rising as middlemen take advantage of the recent price upswing, but the fact remains that this market is heading into a deficit in the second half of 2024 with demand drivers from green technology end markets (electric vehicles, solar, and others) intact and growing despite China’s slowdown in property end markets. This move is still in the early innings, and we could look to add to our position on retracements.

Short S&P 500 and long 2-year Treasury note

Our view remains that the process of an economic slowdown, leading to recession this year, is playing out. Wage growth is slowing rapidly. There can be no wage-price spiral as in the 1970s if wages are not themselves spiraling.

Line graph from BCA Research showing a comparison of posted wages (advanced, left scale) and Atlanta Fed Wage Growth Tracker (right scale) from 2019 to 2024. The chart highlights the peak in wage growth during 2022 and a subsequent decline through 2024, reflecting the market dynamics.

Figure 2: Source: BCA Research

The chart above takes what firms are posting for wages, advances them (i.e. pushes them forward in time) by 8 months, and then lines them up with current wage growth as tracked by the Atlanta Fed. The fit is tight, and the implication is that wage growth will slow further.

Without wage growth, inflation is likely to continue to decline over the next 12 months, alongside weaker overall growth.

A collapse in S&P 500 earnings of -10%, run-of-the-mill for a recession, and a sharp drop in the 2-year yield as unemployment rises, will give the Fed cover to finally cut rates aggressively. Markets are not pricing in either of these scenarios in the least, making this a perfect time for us to build out these positions.

Corn and feeder cattle

We initiated a short position in feeder cattle in late April. Live cattle and feeder cattle prices have been in a tremendous bull market for the past few years. Prices appear to be topping however, in a similar fashion to 2015 when demand destruction created a top and subsequent decline in prices into 2016. While cold storage beef stocks are fairly tight at the present moment, beef cutout prices (the estimated value of a cow divided into its saleable cuts) are rolling over as consumer demand hits the wall. Any sort of economic downturn later this year could exacerbate a downward move in pricing. 

Corn and other grain markets appear to have bottomed. Sentiment is bearish, at the polar opposite from where it was during the Russian invasion of Ukraine in 2022. Remember when banking analysts called for food riots all over the world due to war induced shortages of corn and wheat? It’s easy to forget, given how far prices have fallen. A shortage is unlikely, but a smaller Brazilian crop, lower US planted acres, and increased Chinese demand for Western hemisphere corn to feed a rebuilt hog herd, could lead to a sustained bull market.

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 NASDAQ
E-Mini Russell 2000
E-mini S&P 500
MSCI EAFE Index
MSCI EM Index
Nikkei 225
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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