Welcome to our official publication of the Prometheus ETF Portfolio. The Prometheus ETF portfolio systematically combines our knowledge of macro & markets to create an active portfolio that aims to offer high risk-adjusted returns, durable performance, & low drawdowns. Given its systematic nature, we have tested the Prometheus ETF Portfolio through decades of history and have shown its durability. For those of you who are unacquainted with our systematic process, we offer a detailed explanation here:
In this publication, we will discuss the performance, positioning, & risks of the Prometheus ETF Portfolio— and it will be published every week on Fridays to help investors understand how our systematic process is navigating through markets. Before diving into our ETF Portfolio positions, we think it is essential for subscribers to understand the context within which our systems choose their exposures. Below, we offer our latest Month In Macro note, which contains the conceptual underpinnings of our systematic process within the context of the latest economic data:
Our latest Month In Macro is our best work yet, and we highly recommend you take the time to review the materials provided. As a supplement to the macroeconomic views provided, we provide our thoughts on price actions this week.
Over the last week, our systems moved to price tightening liquidity, with the dollar rising by 0.65%. We show the daily path of returns through the week:
Using our understanding of cross-asset market pricing, we can derive the market-implied odds of varying regimes of growth, inflation, and liquidity. Currently, our proprietary process suggests that we are in a period of rising real growth pricing, though the distribution of regime probabilities remains relatively flat. We show our market regime monitor below:
Equity market strength faltered this week, but the broader trend in equity markets has been driven by rising liquidity conditions. In the most recent month, growth, inflation, liquidity, and discount rates have contributed 1.62%, 3.04%, -2.2%, & 0.5%, respectively. We show the cumulative contributions to total returns over the last year below. The sum of these lines equals the total return on equities:
We think it’s important to recognize that inflationary factors continue to drag on equities while liquidity (and, to a much lesser extent, growth) is driving equity strength. This trend in equities is less robust than if all factors supported equity positions— however, there is nonetheless significant support for the equity trend.
In addition to our market regime process, we have developed a set of trend filters to help us better evaluate the sustainability of asset-class moves. As always, we have tested these trend measures over time to understand whether they can help reliably generate an edge in markets. As proof of concept, we show how these combined signals have performed relative to an underlying portfolio of the same four assets. Currently, these signals suggest long positions in stocks, short positions in bonds, short positions in commodities, and long positions in gold.
We begin by showing our signals for stocks. We show both the full signal history and the most recent signal context:
Next, we show our system’s current readings for 10-Year Treasuries:
We now turn our attention to commodities:
Finally, we show our trend signals for gold:
Over the last week, the Prometheus ETF Portfolio was down by -0.63%. Below, we show the contributions to this portfolio performance across securities:
Turning to next week, our systems are looking to position the Prometheus ETF Portfolio, as shown below. The portfolio contains 21 positions heading into next week. We show these below:
POSITIONS: Cash: 45.31% USHY: 6.7% MBB : 5.17% XLV : 4.79% SPX : 3.52% XLI : 3.14% XLF : 2.99% XLB : 2.71% FXE : 2.59% XLC : 2.52% XLK : 2.5% XLY : 2.49% XHB : 2.38% SOYB: 2.06% CANE: 2% FXB : 1.96% FXA : 1.76% CORN: 1.76% CPER: 1.6% WEAT: 1.46% UNG : 0.59% . Please note if cash position is negative it implies leverage.
Additionally, we show these positions aggregated into asset class allocations below:
The portfolio has a net exposure (ex-cash) of 54.69%, with a gross exposure (ex-cash) of 54.69%, i.e., it is long-only. This allocation has an expected volatility of 4.84%, with maximum expected volatility of 10%. We are seeing both the symptoms and sources of liquidity improving within an inflationary environment. Until this changes, it favors equities and commodities over fixed income. Our positioning reflects these dynamics. Until next time.