361 Domestic Long/Short Equity Fund
January tends to be a month full of excitement as the upcoming year brings opportunity—including a fresh start on New Year’s resolutions, and perhaps for some, the thought that winter may be half way over. The start of 2017 didn’t disappoint, with major changes in the U.S. political system, continued negotiations around Britain’s exit of the E.U. and the beginning of fourth quarter earnings season. U.S. equity markets fared well during the month, illustrated through the performance of the Russell 1000 which returned 2.01%. The 361 Domestic Long/Short Equity Fund lagged, generating -0.30%.
The beta mismatch that took place in the second half of 2016 continued, though not as severely. The reward for risk remained as the highest beta stocks moved higher to the tune of 2.41%, and the lowest beta stocks within the Russell 1000 were up 0.23%. Those higher beta stocks hurt the portfolio as we tend to have short exposure to that part of the market. Interestingly, moderate beta names were among the best performers for the month.
While the overarching beta profile of the market wasn’t favorable, stock selection was the source of much of the underperformance. At the sector level, sector tilts were a net positive, but those tilts were overwhelmed by stock selection intra-sector.