Prometheus ETF Portfolio

Managing The Stock Market Drawdown

Welcome to Prometheus ETF Portfolio. The Prometheus ETF Portfolio aims to allow everyday investors to access an investment solution that combines active macro alpha, passive beta, and strict risk control, all in an easy-to-follow, low-turnover solution. We aim to achieve strong risk-adjusted returns relative to cash, with limited capital drawdowns in depth and duration. We do this in a highly accessible package, which rotates between three highly liquid ETFs, readily available to any investor with a brokerage account.

Equity markets have fallen more than 10% in a month, entering the commonly defined “correction territory.” In today’s note, we offer our thoughts on navigating this drawdown. Let’s dive in.

• Our Macro Regime Monitors show a flatter distribution of macro regime probabilities, but they remain skewed toward a rising growth regime.  

• Weaker macroeconomic fundamentals are unlikely to meaningfully corroborate recent market trends, making the current trend unlikely to remain sustainable. 

• Within this context, our ETF Portfolio program has gone into drawdown, and our systems have scaled back positions in a manner consistent with drawdown control.

• While the speed and intensity of this drawdown have been significant, both for the equity market and our ETF Portfolio, these outcomes are well within the range of outcomes macro investors should expect. We turn to very recent history to show our process for handling such events to limit drawdowns and add outperformance over time.

• We expect equity markets to recover, but even if our systems are wrong in that regard, our risk control will cap downside risk. Our systems will scale up positions only once the new macro regime is clear and portfolio accretive.

Before we dive into our assessment, we first share our latest positions.