Dynamic Alpha Macro Fund (DYMIX): November 2023 Overview

Welcome to the Monthly Summary

Welcome to the monthly summary of the Dynamic Alpha Macro Fund (DYMIX). This November, we continued to capitalize on our dual-strategy approach, which blends the robustness of a fundamental global macro 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.

MONTH END PERFORMANCE METRICS as of 11/30/2023

NAVOne MonthSince Inception*
Dynamic Alpha Macro Fund9.995.74%-0.10%
S&P 500 TOTAL RETURN INDEX9.13%8.12%
Gross Expense Ratio is 1.99%.

QUARTER END PERFORMANCE METRICS as of 9/30/2023

NAVOne MonthSince Inception*
Dynamic Alpha Macro Fund9.31-5.96%-6.90%
S&P 500 TOTAL RETURN INDEX-4.77%-6.28%
Gross Expense Ratio is 1.99%.


* Fund inception was 7/31/2023. Performance is as of 11/30/2023.
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

The image shows two pie charts representing the overall allocation of the Dynamic Alpha Macro Fund's investment portfolio. The pie chart on the left is labeled 'OVERALL ALLOCATION' and is divided into five segments indicating different investment categories: Global Macro (50%), Cash (19%), Growth Equities (10%), Core Equities (19%), and Dividend Equities (2%). The pie chart on the right is titled 'GLOBAL MACRO' and breaks down this category into six types of investments: 2-Year Treasury (69%), Gold (17%), Silver (5%), Swiss Franc (3%), Short Sugar (3%), and Corn (2%).

Contributors

Long: Silver, Gold, 2 Year Treasury Note, Swiss Franc, and Strategic Equity Holdings
Short: Sugar


Detractors

Long: Corn
Short: Nasdaq


Current Positions

Long: 2-year Treasury Notes, Gold, Silver, Swiss Franc, Corn and Strategic Equity Holdings
Short: Sugar

Macro Observations and Market Analysis

Insights on Apple’s Market Position

First, let’s look at two important charts that have caught our attention and help inform our views on the stock market, gold, and Treasuries.

Here’s a chart of the price to sales ratio of Apple:

A composite chart displaying two key financial metrics for Apple Inc. The top graph, in purple, shows a significant upward trend in Apple's stock price over a period extending from 2010 to the present. The bottom graph, in blue, represents Apple's price-to-sales ratio (P/S LTM), which fluctuates over time but shows a slight upward trend in recent years. The stock price has reached new highs, indicating strong market performance, while the P/S ratio remains relatively stable.

Source: Koyfin

Apple used to be a growth stock back in 2015/2016 when it traded at 14x earnings and 3x sales. Today, it trades at 33x earnings and 7x sales. What’s amazing is that the company is no longer growing very much, with revenues declining over the past 5 quarters.

Microsoft is in a similar position, with a P/E of 36x and P/S of 12x; together the two stocks make up over 20% of the Nasdaq. A price to sales ratio of 7 or 12x is not normal for the largest of large cap stocks. You only see it at market peaks.

What’s happening today is eerily similar to the end of the dot-com bubble, when investors crowded into Dell, Intel, Cisco, and a few other impenetrable leaders, after so many smaller, more speculative stocks had crashed. At the time, the thinking was that even though pets.com was worthless, an investor could skate unscathed by holding the big names. It didn’t work. Those “leaders” all fell 65-90% in the final leg of the bear market. We are now 2 years into a bear market, and we could easily see the current crop of tech leaders cut in half, which would only take them back to valuations that they enjoyed pre-Covid!

The Nasdaq has rallied, and we’ve covered our short position for now. But clicking one layer below the index itself shows detail that informs where we think things are heading.

Shares Outstanding in GLD and TLT

The other chart we’d like to cover highlights gold ETF outflows and Treasury bond ETF inflows:

A line graph comparing the shares outstanding over time for two exchange-traded funds (ETFs): the SPDR Gold Trust (GLD) in gold color, and the iShares 20+ Year Treasury Bond ETF (TLT) in blue color. The timeline spans from 2003 to 2023. The GLD shares outstanding show a gradual increase until 2013, followed by some fluctuation and a slight downward trend towards 2023, with peaks annotated with specific figures in millions. In contrast, the TLT shares outstanding exhibit a consistent increase over the years, with a sharp rise from 2019 to 2023, also annotated with figures in millions at various points on the graph.

Source: National Inflation Association

The yellow line shows flows into the gold (GLD) ETF while the blue line shows flows into the TLT (long duration Treasury) ETF. This is a fascinating look at sentiment between GLD and TLT – over the past 2-3 years investors have been pulling money out of gold and dumping money into longer duration Treasuries.

The Treasury line is truly amazing as normally you see flows into an asset as it performs well whereas these TLT flows are all an attempt to “buy the dip”. The extreme retail flows into TLT are unlikely to be rewarded; most of these investors will either break even or lose money.

Instead of continuing to chip away at buying the 10-year or 30-year Treasury, we believe a better approach is to buy the 2-year Treasury note. We hold the notion that the Fed will cut rates at the front end of the curve during a downturn – as they always have – even if long-end yields do not drop as much as they have during previous recessions over the past 30 years.

One way to visualize this is to consider what the current inverted yield curve could look like in a year’s time. A likely outcome would have the 2-year at 2.5% (down from 5% today) and the 10-year at 4% (down from 4.3% today). That outcome doesn’t do much for bulls on long-term Treasuries. However, it delivers a meaningful return at the front-end of the yield curve, particularly if you adjust the leverage on a 2-year Treasury note position to match the exposure of a 10-year note.

Although it’s just one data point, the massive retail flows into TLT have functioned as one input into helping us change our minds on what part of the yield curve to position ourselves in as we navigate the tail-end of this economic cycle. And the flows out of gold are very bullish from a contrarian standpoint.

Portfolio Update for the Dynamic Alpha Macro Fund

Aside from small positions short sugar and long corn – which we will discuss further in an upcoming letter – our core portfolio remains largely the same. We are long gold, long 2-year Treasuries, and were short the Nasdaq 100 until we removed that position in mid-November for risk management purposes. We’ll look to add to our existing positions on strength in the months ahead and reinstate the short equities trade once the current rally exhausts itself.

As always, we continue to be nimble, and 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

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INTEREST RATESCURRENCYAGRICULTURE
10-year Treasury note
2-year Treasury note
30-Year Treasury
5-year Treasury note
SOFR
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

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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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