Welcome to the ETF Program. The ETF Program is an investment program that combines active macro alpha and strict risk control, all in an easy-to-follow solution for individual investors.
We visualize the simulated return path for the program below:
To today’s note. Our observations are as follows:
Macro assets are experiencing cross-asset trends that are beginning to shift, with equity trends now in negative territory, commodity trends remaining strong, and bond trends remaining weak.
The business cycle is now in a slowing expansion, pressures on monetary policy remain biased towards tightening, and capacity utilization remains strong.
Our forward-looking macroeconomic regime probabilities indicate a predominance of disinflationary outcomes.
It is early days, but a more cautious asset allocation looks warranted.
Let’s begin sharing the data that drives our current assessment of the macro regime and our subsequent risk management and positions.
Macro Trend Monitors
Asset prices in aggregate reflect changes in conditions relative to expectations. As such, carefully monitoring macro market trends is an integral part of evaluating conditions in the macroeconomy. To do this, we use our macro trend monitors, which we share here. We begin with stocks:
Equity trends have turned nascently negative. Next, we turn to bond market trends:
Bond market trends have turned positive. We now move on to broad commodity aggregates:
Commodity trends remain strong. Next, we examine our macro trend signals for Gold:
The gold uptrend remains intact. Finally, we examine our trend signals for Bitcoin:
Bitcoin remains in a material downtrend.
Trend following is a good solution for many investors, as it is intuitive and provides solid risk control. However, the signals used in trend following are fairly basic, so we don’t think there should be a high barrier to entry for basic trend-following strategies. As such, we will provide access to a Basic Trend Program at zero cost to users for a portfolio of stocks, Gold, bitcoin, and bonds. The program uses three layers of portfolio construction: a risk-parity base, a two-speed trend overlay, and a 15% maximum volatility cap. These layers are applied versus a benchmark beta of 60% Stocks, 15% Bonds, 15% Gold, and 10% Bitcoin. We will release a methodology note soon, but in the meantime, we share the summary statistics and current positioning below:
This program currently has a 50% maximum long position in Stocks, a 100% maximum long position in 30-year Treasuries, a 100% maximum long position in Gold, and a 0% position in Bitcoin.
In risk-parity terms, this translates to: Stocks: 20%, Bonds: 53%, Gold: 15%, Bitcoin: 0%, and Cash: 12%.
Please note that these positions do not directly reflect the Prometheus trend measures, which are relevant to our proprietary and paid programs. The positions in our Basic Trend Program use an equal split between 1-month and 6-month trends.
While basic trend following is a strong solution for many investors, there is a world of signals and strategies beyond it. We begin to address these in the following sections.
Macro Cycle Monitor
Our systems aggregate a wide range of fundamental economic data to produce timely, proprietary estimates of the current stages of the macro cycle. We share some of these gauges, starting with our signals for business cycle conditions:
Our latest readings continue to indicate an expanding business cycle, though we see further signs of slowing. Next, we turn to monetary policy pressures. Our monetary policy gauge measures the pressures on the Federal Reserve to move monetary policy based on the trade-off between growth and inflation data. The higher our readings, the more pressure there is to hike policy rates. The lower the gauge, the more pressure there is to cut policy rates.
