361 U.S. Small Cap Equity Fund
In a rather repetitive trend, November capped off the eleventh month of 2017 with the markets trending higher. The Russell 2000 Index has generated a positive return in nine of the eleven months for the year, with the worst month logging in at -2.03%. By contrast, the single largest positive month for the year was up 6.24%. For the month of November, the 361 U.S. Small Cap Equity Fund generated a positive return of 1.48%, lagging the index which earned 2.88%.
Given the portfolio is sector-neutral, performance is driven almost exclusively by stock picking and factor returns. Stock selection in Energy was robust during the month, as the stocks in the portfolio outperformed by almost 2x that of the index. The Energy sector, however, is one of the lowest weights within the benchmark and therefore, the contribution to return was muted.
The most significant underperforming sector on an absolute basis was Information Technology. The sector was the worst performer within the benchmark for the month (with a total return of -1.28%), and the Fund’s stock picks within the sector detracted from performance as well.
At the heart of the strategy is our predictive ability with regard to sell-side analyst revisions. The 361 U.S. Small Cap Equity strategy experienced 286 net positive revisions, comparing favorably to 32 net positive revisions for a randomly generated portfolio. Significantly positive analyst behavior, however, was not as rewarded for the month. Those companies that experienced the largest positive earnings revisions by the sell side did not advance as much as those that experienced fewer revisions.