Dynamic Alpha Macro Fund (DYMIX) – May 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 5/31/2024NAVOne
Month
Three
Month
Since
Inception*
Dynamic Alpha
Macro Fund
11.47-1.88%13.68%15.18%
S&P 500
TOTAL RETURN INDEX
4.96%3.9116.50%
 

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%
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:

Detractors:

Current Positions:

Macro Observations and Market Analysis

Our global macro strategy underperformed the S&P 500 in May; this is after significant outperformance over the previous few months. The strategic allocation of US Stocks helped to cushion some of the losses in the global macro strategy for this month.

Diversification, by definition, involves utilizing investments like our global macro strategy that can have a low or even negative correlations.  It’s important to remember what low or no correlation means; it means that during certain time periods the performance of the non-correlated investment WILL deviate from the benchmark (this could be on the upside like the last few months, or on the downside like this month)

When I was a financial advisor, I would explain it this way to my clients, “If everything goes up at the same time, … it generally means everything will, go down at the same time.”  My clients would usually finish that last part with me.  A diversified portfolio should always have a position that is underperforming, and not only is that OK, its beneficial. The Dynamic Alpha Macro fund continues to perform as designed.  Continue reading for more insights on current positioning.

Capital rotation

The current anchor investments in our global macro portfolio are metals: two precious (gold and silver) and one industrial (copper). We believe that all three will perform exceptionally well over the next 3-5 years, based on both fundamental and technical factors. We’ve focused on our fundamental views in previous letters; today we’ll discuss how we think about rotating capital between the three and managing our gross exposure across the metals theme.

Gold and silver are clearly correlated. Gold is almost exclusively a precious metal, whereas silver has both features of a precious metal as well as meaningful demand from industrial processes. Silver’s industrial demand is growing rapidly, as it is used extensively in solar panels with no easy replacement. Nevertheless, the two metals are highly correlated – from a positioning standpoint it’s important to underweight one if the other is overweighted.

Copper is not a precious metal; hence, one would think it should be uncorrelated to gold and silver, as copper is not hoarded above ground but is rather mined and consumed in roughly equal parts. Unfortunately, that’s not always the case. There is a larger latent correlation between gold/silver and copper than what intuition would lead one to expect. The recent mid-May price action in these three metals is a case in point – all three experienced a sharp, swift three-day correction simultaneously, even though no news was released that impacted the fundamentals; technical sell algorithms impacted all three and correlations spiked.

We are fundamentally bullish on all three metals. But it’s clear that you must rotate capital between them to properly express that view. An example from the last bull market in metals should crystallize this point.

Here’s a chart of the performance of gold (blue line) and silver (white line) from 2008-2011:

Figure 1

Since both charts have identical timelines, you can visually see that gold tends to chug along consistently during a structural bull market, while silver does very little and then vastly outperforms during a couple of moments. Silver’s last great moment of outperformance was that August 2010 to April 2011 impulsive move higher in the chart above (denoted by the dashed arrow), where it went up 150% while gold increased 25%. It appears that silver could be close to another one of those moments of outperformance. We plan to bias our precious metals exposure toward silver in the months ahead.

Mining equities come alive

We often look to the performance of mining equities as a clue, or “tell”, on the strength of the underlying investment thesis in gold, as well as our timing on when to size up or size down our exposures. What’s notable is that the correlation between the miners (we look at the GDX ETF as a proxy) and spot gold began breaking down around 2022. As the yellow metal moved from $1,883/oz in May of 2022 to $2,015/oz by mid-Feb. ’24 (+7%), the miners saw a return of -22.1%.

What is going on?

Two answers spring to mind. The simple answer is that it takes some time for higher spot gold prices to flow through to the financial statements of the mining companies. Financial performance is only reported quarterly, and there is a natural lag between when the price of gold increases, and the resulting impact on cash flows. One could make the case that the uncertainty around inflation is leaving investors questioning whether rising input costs of fuel and labor will exceed the realized sales price for the metals. While inflation tends to benefit gold, it initially weakens operating performance of the miners, due to how resource intensive the gold prospecting industry is. Furthermore, in the past many gold mining companies have been notorious for destroying shareholder equity, focusing on expanding ounces of production (the lever that management historically has been incentivized around) instead of increasing return on equity. The destruction of capital by the gold mining industry during the bear market of 2012-2016 is still in the minds of investors.

A second answer is that Western investors have yet to participate in the current, nascent bull market in gold, and it is Western investment demand that drives the re-rating of gold mining equities. Global central banks and Asian retail investor demand have propelled gold higher in recent quarters – those sources of demand buy tangible ounces and not mining equities.

In recent months the tide has turned, with the GDX vs. gold spread tightening substantially. Since February 23rd, the miners have returned +34% vs gold’s +16%. Now that runaway inflation fears have subsided, we expect that costs will remain relatively flat and profit margins will expand. The recent relative performance of gold mining equities makes us even more confident that gold has entered a new multi-year bull market that is still in the early innings. 

Portfolio

Although we always construct our portfolio trade-by-trade from a “best ideas” perspective, it can be helpful to sometimes look at the portfolio thematically. We currently have 3 non-correlated baskets in the portfolio:

There are always conflicting fundamentals for our views. In fact, if we can’t write down both the bearish case as well as the bullish case for each of our trades, we aren’t doing our research properly.

A chart showing the relationship between the Global Manufacturing PMI and the S&P GSCI Industrial Metals Index from 2005 to 2024. The chart highlights periods of correlation and divergence between manufacturing growth and industrial metals demand, indicating how manufacturing indicators may predict industrial metal performance.

Figure 2

One of the charts we are monitoring is the rebound in manufacturing leading indicators.

The chart above shows that manufacturing growth – and hence implied demand for industrial metals – is hooking higher. This bodes well for our copper trade.

On the other hand, this doesn’t conform with our views of a U.S. recession. That’s perfectly fine. We can envision a state of the world where both a consumer-led recession in the U.S. and a manufacturing rebound occur simultaneously. And if a recession is further out than we currently expect, we’ll focus on our metals positions and keep our recession trades small or take them off completely.

As we navigate the complexities of the global market, our commitment to disciplined research and strategic capital allocation remains unwavering. Our focus on metals, mindful capital rotation, and our futures positions exemplifies our approach to capturing growth opportunities while managing risk. We are optimistic about the future prospects of our investments and confident in our strategy to drive long-term value for our investors.

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.  We appreciate your continued trust and partnership, and we look forward to updating you on our progress in the coming months.


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:

.

You are now entering the
website
Continue