Preface

In the second quarter, we eke’d out 1.37% of outperformance vs. SPY, after reaching nearly 7% outperformance for the quarter by the end of May and then giving most of that up in June. 

Here’s the breakdown of Basket Contribution for Q2:

Our YTD performance is currently +22.25% vs. SPY up 15.6%

I’m happy with this performance in general, but I regret to inform that we posted our first month of underperformance vs the S&P500 since inception! 

This was mainly due to hedging and the underperformance of Industrials this month. Our biggest outperformers over the month of June were GLP-1 and AI. 

It often feels that statistics only exist for us to measure mean reversions, and I don’t say that because June was our long-awaited mean-reversion period… 

Ok, maybe I do. 

Where this was felt most acutely was in our Fiscal Primacy basket (which returned -6.5% for the month) as long-term growth expectations and political tailwinds moderated, well, moderately alongside stubbornly high bond yields in the face of good-news-is-good-news prints in CPI, PPI, and PCE deflator. These dovish economic reports were overshadowed by a significant markup in the longer-run Congressional Budget Office deficit scoring figures as well as cooler-than-expected retail sales advancement. 

While it may be an oversimplification to say that the market has collectively turned its head towards a potential third rate cut this fall, choppy trading in long-lived assets over the past month do show signs that investors are increasingly seeing opportunities with macroeconomic exposure as having binary outcomes. While most market participants have been glued to metrics such as CPI and PCE deflator, I feel as if the focus has shifted to a much less scientific ‘will he or wont he?’ debate like something you might see on a bad soap opera.