Dynamic Alpha Macro Fund: February 2024 Overview

Welcome to the Monthly Summary

Welcome to the monthly summary of the Dynamic Alpha Macro Fund. This month, we continued to capitalize on our dual-strategy approach, which blends the robustness of a fundamental global macro futures strategy with the steady performance of a U.S. equities portfolio. Crafted with a meticulous focus on risk management, we believe, this combination embodies our pursuit of generating “Dynamic Alpha” in the face of volatile market dynamics.

As a result, our overall allocation this month continues with approximately 50% directed towards U.S. Equity ETFs, with the balance invested in a global macro futures strategy and short-term fixed income. With the global macro strategy in play, we’ve achieved long/short exposure across varied and non-correlated markets, from metals like gold and silver to diverse currencies, commodities, and financial indices.

Thank you for being part of the Dynamic Alpha journey. We are committed to keeping you informed and ensuring our strategies align with the ever-evolving financial landscape.  With that in mind, if you have any questions, feel free to contact us at info@DynamicWG.com.

PERFORMANCE METRICS


Performance as of 2/29/2024NAVOne
Month
Three
Month
Since
Inception*
Dynamic Alpha
Macro Fund
10.09-2.04%1.42%1.32%
S&P 500
TOTAL RETURN INDEX
5.34%11.98%12.11%
 

Performance as of 12/31/2023NAVOne
Month
Three
Month
Since
Inception*
Dynamic Alpha
Macro Fund
10.515.64%13.36%5.54%
S&P 500
TOTAL RETURN INDEX
4.54%11.69%4.67%
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

Contributors


Long: Strategic Equity Holdings
Short: Coffee


Detractors


Long: Copper, Silver, Gold, 2 Year Treasury Note, Swiss Franc, and Yen
Short: None


Current Positions


Long: 2-year Treasury Notes, Gold, Silver, Copper, and Strategic Equity Holdings
Short: Coffee

Macro Observations and Market Analysis

Portfolio in February

Our Global Macro portfolio struggled in February, as our core themes re-traced gains they had delivered heading into year-end 2023. We trimmed positions throughout the month for risk management purposes. We reduced our Treasury note position by ~ 2/3rds, our gold position by ~1/3rd, and completely closed out of our short dollar positions in the Swiss franc and the Japanese yen. Note that our decision to trim a position for risk purposes has nothing to do with our conviction in the thesis; rather, price action alone determines how and when we reduce our sizing. We trim based on pre-set risk limits tied to price action rather than how strongly we feel about a view. We can always rebuild positions later as price action improves. Our short position in coffee did provide a small gain, along with our strategic equity positions providing strong returns, helping to cushion some of the underperformance of the remaining global macro positions. Our analysis and discussions with our global macro manager show that this is well within historical norms.

Trying to find win/win 1995 or 2000

A topic of conversation in the financial world is whether we are in a 1995 moment in the markets, or whether it is 2000. The reference here is to the years leading up to the dot-com equity market peak in 2000. If the tech boom in artificial intelligence is in its infancy (from a markets perspective; we’re not referring to its impact on the economy), then Nvidia, Microsoft, and other stocks can power ahead for years to come. That would put us in an analogous 1995 moment.

Alternatively, if this is 2000, then we are nearing a major peak in equity markets. Here are our thoughts on where we are, and why we remain confident in our approach and portfolio construction.

Pictures worth 1,000 words

When you analyze charts and the market as consistently as we do, you become intimately familiar with them – so much so that you sometimes need to step back to notice divergences staring you in the face. Let’s look at a few charts. 

Line graph displaying the performance of the S&P 500 Total Return in USD from January 1, 1990, to December 31, 1999. The graph shows a general upward trend over the decade. Starting at a value near 90, the line rises steadily with some fluctuations, ending near 590. The x-axis represents the date, ranging from 1/1/1990 to 12/31/1999. The y-axis represents the index value, ranging from about 90 to 590. Source: Morningstar Direct, provided at the bottom of the image.

Figure 1: S&P 500 Equity Market from 1990-2000

Line graph showing the Gold Spot Price from January 1, 1990, to December 31, 1999. The value starts just above 100, fluctuates over the decade, and ends slightly above 60. The x-axis indicates the time from 1/1/1990 to 12/31/1999, while the y-axis represents the price ranging from 50 to 110. The graph line is colored blue, and the source cited is the World Gold Council.

Figure 2: Gold from 1990-2000

If we are in a balmy period for equity markets, with years of strong performance ahead of us, what would the relationship between equities and gold look like? We choose gold as it encapsulates geopolitical risk, inflation, and deflation protection in a single package, making the relationship between it and equities a simple heuristic to capture the macro backdrop.


Here’s what we notice: when you have a multi-year, sustainable bull market in equities, gold is always out of favor. The reality is that gold really is a useless rock. It has applications in jewelry, computers (conductivity), and elsewhere, but that accounts for a small fraction of its value. Gold doesn’t rise when real interest rates are positive, and stocks are rising due to solid earnings growth. That was the case with Figures 1 and 2 above, where the bull market in equities in the 1990s and the commensurate bear market in gold makes intuitive sense.


Until roughly 2019, you had a bull market in equities coming out of the lows of 2009 and a gold market that was out of favor after a cyclical bear market from 2013-2016. That much seems about right. But the recent extreme bullish price action in gold – skyrocketing in 2019-2020 before building a bullish base over the past three years – doesn’t line up with the notion that we are in a “1995” scenario for equities, with years of price appreciation ahead of us.


Figures 3 and 4 below don’t make as much sense. Today’s setup looks closer to a potential equity market-top to us. The breakout that’s upon us in gold is signaling one of two things: either the higher inflation prints in January 2024 are setting us up for a rebound in inflation to a higher level, one that un-anchors inflation expectations (throughout the spike in inflation from 2021-2022 longer-term expectations of inflation remained well anchored); or, we are heading for a recession and short-term interest rates are about to be reduced much more than the market expects.

Line graph representing the S&P 500 Total Return (TR) from January 1, 2010, to February 29, 2024. The graph shows a significant upward trend with fluctuations over the 14-year period. It starts at a value close to 90 and rises to nearly 690 by the end of the period. The x-axis marks time from 1/1/2010 to 2/29/2024, and the y-axis denotes the index value, ranging from 90 to 690. The source is noted as Morningstar Direct.

Figure 3: Current S&P 500 Equity Market from 2010-Present

Line graph depicting the Gold Spot Price from January 1, 2010, to February 29, 2024. The graph displays volatility with a notable dip and recovery, beginning just above 110, dipping to near 90, and peaking around 190 before ending near 170. The x-axis spans from 1/1/2010 to 2/29/2024, and the y-axis ranges from 90 to 210. The line is blue, and the World Gold Council is cited as the source.

Figure 4: Gold from 2010-Present

Positioning


We are long gold. Whether due to another bout of inflation or the arrival of recession, negative real rate policies appear set to continue, as they have for much of the past two decades.


We are long copper. Despite China’s property slowdown, demand for copper grew by +8% in 2023 and is set to continue growing, driven by surging investments in renewables (solar/wind) installations and electric vehicles. No changes were made to this position in February.


We are long 2-year Treasury notes – the Fed has indicated that they plan on cutting rates 3 times (75 bps) this year. We believe they will either cut three times as they say, or they will cut 10 times (250 bps) due to a recession. This position, like gold, offers an asymmetric payout. We could look to add back the exposure we trimmed, later this spring or summer as price action moves back in our favor.


We are short coffee, a short-term trade. Based on our analysis, there is no shortage of coffee, yet speculators have built up a massive, long position over the past few months. We believe prices will retreat over the remainder of the first half of this year.


Finally, in accordance with our views expressed at the top of this letter, we could initiate a short broad equity markets position. We took our short equity position off for risk management purposes in November 2023, but given the current risk/reward set-up, we will look for an opportunity to short what might be a major market top sometime in the next couple of months.


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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