Insights

Through a constant and thorough assessment of macroeconomic and business conditions, Portfolio Managers Michael Aronstein and Michael Shaoul, Ph.D. select investments that they expect to be most affected by large scale, external economic forces. The commentary below discusses a few of these macro themes that were present in the first quarter of 2023.

The banking crisis dominated headlines in 1Q 2023, surprising many investors. What is your macro view on Financials?

The Fund’s largest short position has been in a basket of companies in the Financials sector, designed to capture a range of stresses building in financial markets.

As the Federal Reserve aggressively raised interest rates over the past year, we believed there would be areas of the market that would be negatively affected. These areas included Financial companies involved in private equity lending and asset markets. Therefore, in 2022, we identified specific banks that had been successful in growing their businesses during the bull market and would likely face challenges in a tightening cycle. A few of those shorts included Signature Bank and Silicon Valley Bank.

As of 3/31/23, the Fund maintained its shorts on select Financials stocks, with a net short position in the sector of nearly 12%.

Based on the 2022 market, how have your macro themes changed?

Our macro themes remain the same. The Fund continues to hold securities in cyclically positioned areas of the market affected by inflationary pressures and a scarcity of products. In fact, in the first quarter, we added an iron ore and steel company and two bulk shipping companies that are globally sensitive.

A few other notable areas include:

1. Gold mining stocks. Gold rose during and after the banking crisis, and historically, large moves in gold typically precede and are followed by large increases in industrial metals and Energy stocks. The Fund has an approximately 10% allocation in gold mining stocks and royalty companies as of the end of the first quarter of 2023.
2. Global exposure. With the lifting of the pandemic measures in China in December, we anticipated that Asian companies may benefit. Therefore, we purchased a South Korea ETF and a Japanese industrial company. Also, the Fund has commodity exposure that is also globally sensitive.

Where does the Fund fit in an investor’s overall portfolio?

The Cromwell Marketfield L/S Fund can complement a core equity portfolio. The long and short portfolios are designed to both participate in equity markets with potentially lower volatility.

Many investors expect volatility to continue in 2023, and as a result, are considering reducing their risk levels in their overall portfolio. We believe the Fund can be an appropriate solution. Over the 1-, 3-, 5- and 10-year periods ended 3/31/23, the Fund provided at least 25% less risk than the S&P 500 Index, as measured by standard deviation.

Source: Morningstar. Standard deviation is a statistical measure of historical volatility. The S&P 500 Index is a capitalization-weighted index of 500 stocks. An investment cannot be made directly into an index.