361 Global Long/Short Equity Fund
While global equity markets advanced in May, there was a reversal from the prior month as U.S. stocks greatly outperformed their European and Asian peers. Growth stocks generally, and tech stocks specifically, were responsible for much of the gains in the U.S. Jobs data also helped inspire confidence in the U.S. economy, while subdued wage growth assuaged inflation fears. Across the pond, concerns about Italy’s political and fiscal situation haunted European markets and the Euro, which fell by almost 3.5% against the U.S. dollar.
For the month, the 361 Global Long/Short Equity Fund returned 0.51%. Given the Fund’s net market exposure (approx. 70%), the fund performed nicely relative to the MSCI World Index, which finished the month at 0.63%. With regard to the beta positioning of the portfolio, it was a slight detractor. Broadly, the highest beta stocks (which the Fund tends to short) outperformed the lowest beta stocks (where the fund tends to invest long). Alongside the beta framework of the fund is a fundamental model, where we seek to hold companies that have exposure to factors being rewarded within the market on the long side, and shorting the opposite. For May, the return to that model was mixed, but those companies thought to rise the most, did indeed move higher. That, coupled with sound stock selection among those names, helped the portfolio. At a sector level, a net short exposure to the Telecommunication Services sector contributed nicely, as that was the worst performing sector within the market for the month at -5.42%. A meaningful underweight to Financials additionally, helped protect the portfolio, as that sector moved down 3.40%.
361 Domestic Long/Short Equity Fund
For the month, investors preferred smaller stocks due to the continued rise in the dollar and its impact on heavy exporters, and tech stocks, which advanced by over 7%, in part on the belief that they would be less impacted by trade wars. On the economic front, jobs data helped inspire confidence in the economy, while subdued wage growth assuaged inflation fears, and the yield on the 10-year Treasury backed off its recent highs.
It was very much a risk-on market for May, with the Russell 1000 Index up 2.55%. These periods can be difficult for the strategy as risky stocks tend to move higher. May was no exception and for the month, the 361 Domestic Long/Short Equity Fund produced a return of 0.80%, though it only slightly lagged the Morningstar Long/Short Category which returned 0.86%. The beta positioning of the Fund was a net detractor. The lowest beta stocks (where the Fund tends to invest long) moved up marginally, while the highest beta stocks the fund is short, were up 6.78%. Elsewhere in the portfolio, given the largely positive move in the Russell 1000, the Fund’s net exposure (approx. 70%) was problematic from an attribution perspective, costing about 73 bps. Similarly, those stocks with the lowest predicted alphas, which the Fund is short, outperformed all other alpha quintiles, though the highest predicted alpha stocks did indeed move higher and provided a positive absolute return for the Fund. From a sector perspective, Information Technology was the best performing sector within the market for the quarter (by more than a factor of x2 compared to the next best performer), and a meaningful underweight for the portfolio was a miss.