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Sage Tactical ETF Strategies 4Q20 Market Review & Outlook

Sage Advisory Services market review for the fourth quarter ended December 2020, discussing what contributed to and detracted from performance for the Sage Tactical ETF Strategies. Q3 2020 hedge fund letters, conferences and more Sage Tactical ETF Strateg

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Sage Advisory Services market review for the fourth quarter ended December 2020, discussing what contributed to and detracted from performance for the Sage Tactical ETF Strategies.

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Q3 2020 hedge fund letters, conferences and more

Sage Tactical ETF Strategies: Equity Allocation

What Helped:

  • U.S. Small Cap
  • U.S. Cyclical Industries
  • International Equities
  • U.S. Value

What Hurt:

  • None

Risk assets ended the year with a flurry, powered by positive developments of a Covid-19 vaccine as well as additional fiscal stimulus from Congress. While virus cases ticked higher all over the world, the continued encouraging readings from consumption data and industrial activity highlighted the continuing recovery. The move in equities was more broad-based than during the summer, with small-cap and value equities joining mega-cap tech in the rally. Overall, equities markets had a stellar fourth quarter, with returns of 12% for the S&P 500, 16% for EAFE, and 19.7% for EM.

The equity allocation posted a positive quarter. The portfolio was and is currently positioned for a continued recovery, which should include a broadening of the rally in style, sector, and region. The rotation into those segments occurred in November in full force and continued into the end of the year, which resulted in solid outperformance of the equity allocation for the quarter.

Notable Portfolio Adjustments During The Quarter:

  • Added cyclical segments, such as mining, transportation, and small-cap equities
  • Increased allocation to emerging markets Asia
  • Trimmed core U.S., EAFE allocations

Fixed Income Allocation

What Helped:

  • Corporate Bonds (HY and IG)
  • Emerging Market Debt
  • Bank Loans

What Hurt:

  • Long Treasuries

Fixed income was a mixed bag in the quarter, with an increase in yields counter-balanced by the outperformance of credit spread sectors. Treasury yields moved into a higher range, catalyzed by fiscal stimulus expectations and positive vaccine news. Those same factors resulted in credit spreads compressing to near-historic lows. Consequently, spread sectors such as corporates, high yield, preferred stocks, and emerging market debt outperformed safer sectors, such as Treasuries and MBS.

The fixed income allocation turned in a positive quarter both on an absolute basis and relative to the benchmark given its lower interest rate sensitivity and overweight to non-core fixed income and investment grade corporate bonds. Corporate bonds, both high yield and investment grade, were the largest contributors to positive performance, while the strategy’s small allocation to long Treasuries was the main detractor.

Notable Portfolio Adjustments During The Quarter:

  • Added Long Treasuries allocation
  • Initiated TIPS allocation
  • Trimmed short corporate bonds

Outlook And Current Positioning

Our view is that for the first half of 2021, the continued economic recovery, supportive policy, and effective vaccines should drive further upside in risk assets, sustain some upward pressure on long rates, and keep reflationary pressures alive. On the economic front, the winter virus surge will no doubt dampen growth out of the gate, but we expect this to be short-lived and for robust global growth of close to 5% for the year.

In addition to major macro risks tied to the virus and the shifting political landscape, the primary return-limiting risk going into 2021 may be valuations, which are less favorable across most asset classes, especially fixed income. Given our views, we enter the first half positioned for upside across our strategies, overweight equities vs. fixed income in our balanced allocation, and overweight credit and higher-yielding fixed income in our fixed income allocation.

The post Sage Tactical ETF Strategies 4Q20 Market Review & Outlook appeared first on ValueWalk.

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Spread & Containment

Tim Cook and Apple Make a Move That Could Annoy China

iPhone maker wants to diversify its supply chain and expand in a crucial market.

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iPhone maker wants to diversify its supply chain and expand in a crucial market.

Apple  (AAPL) - Get Apple Inc. Report no longer wants to be surprised. 

Like the rest of the multinationals, the iPhone maker has been impacted by the covid-19 pandemic which has exacerbated the disruptions in supply chains. 

The restrictive measures and lockdowns imposed in China to limit the spread of the virus have particularly affected the local suppliers of many Western companies. The zero-covid policy in China has been a nightmare for suppliers, forced again to temporarily close some of their factories or to have their employees work under exceptional conditions such as living on the production sites.

This dependence on China has raised many questions that companies have been trying to answer since the pandemic emerged. The most urgent is the diversification of the supply chain or trying to have suppliers both locally and in different regions of the world.

Apple

The iPhone 14 Will Also Be Produced in India

Apple has just answered it. The Cupertino, Calif.-based group will now produce some units of the new iPhone, the iPhone 14, in India, which is a big first.

"The new iPhone 14 lineup introduces groundbreaking new technologies and important safety capabilities. We’re excited to be manufacturing iPhone 14 in India,” the company said in a statement on Sept. 26, confirming speculation.

The iPhone 14 will be assembled in the country by Foxconn, Apple's historic supplier, which has a factory on the outskirts of Chennai. These phones will be sold locally in the next few days, but they will also be exported to other markets. 

Apple's decision also comes amid heightened tensions between Washington and Beijing over Taiwan. The Biden administration has banned chipmaker Nvidia  (NVDA) - Get NVIDIA Corporation Report from selling some of its chips to Chinese companies, for example. Beijing, for its part, has taken steps to develop its technology sector.

If Apple had been assembling iPhones in India since 2017, it was always old versions and not brand new ones. The iPhone 14 is the first newly launched smartphone Apple will assemble outside of China. It therefore marks a change in strategy on the part of CEO Tim Cook's group.

This decision allows Apple to accomplish two important things. 

The tech giant will diversify its supply chain even though the majority of iPhone production is still in China.

India, the New Eldorado

The decision also allows Apple to truly establish itself in a growing market where its market share is still very low. Indeed, Apple has only a market share of 3.8% in the second smartphone market in the world, according to a Counterpunch Research study on smartphone shipments in the second quarter of 2022.

The Indian smartphone market is dominated by China's Xiaomi  (XIACY)  with a 19% market share, followed by South Korea's Samsung  (SSNLF) with a 19% market share as well. India smartphone shipments reached 37 million units between April and June, according to Counterpunch, an increase of 9% year-over-year. 

But the market is down 5% quarter-on-quarter.

Apple "remained the top-selling brand in the ultra-premium segment," which are phones costing at least $650 or 45,000 rupees, the report said. "Increasing ‘Make in India’ capabilities for both local consumption as well as exports, offline push through multiple promotions and consumers’ brand preference (...) helped Apple retain its edge in the premium segment."

It added that: "The opening of its own e-store, iPhone SE 2022 and offers on other models will further drive Apple’s shipments in the coming quarters."

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Apple unveiled the iPhone 14 early September, and it has a base price of 79,900 rupees in India, the equivalent of $980.

By producing its new products locally, Apple will be able to attract customers looking for the latest innovations and the group will also be able to benefit from local aid at a time when the Indian authorities are seeking to boost the tech sector by all means.

In a recent study released Sept. 21, JPMorgan analysts said that they expect Apple to move 25% of its entire iPhone production line to India by 2025 as it looks to diversify its supply chain. They added that by late 2022, 5% of ‌iPhone 14‌ production will be moved to India, with a significant decision taking place three years later. 

In addition to moving 25% of ‌iPhone‌ production to India by 2025, JPMorgan analysts said the company could also move 25% of other product lines to the country, including AirPods, Mac, Apple Watch, and iPad.

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International

Export Slowdown Could Bring More Bad News For Yuan

Export Slowdown Could Bring More Bad News For Yuan

By George Lei, Bloomberg markets live reporter and analyst

Chinese exports are poised…

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Export Slowdown Could Bring More Bad News For Yuan

By George Lei, Bloomberg markets live reporter and analyst

Chinese exports are poised to slow further in the remainder of 2022, with various high-frequency datasets pointing to cooling global demand. Exports, a key growth engine that has lifted the Chinese economy since the pandemic, are sputtering. That could bring more bad news for the yuan.

South Korean data in September through the 20th suggest exports to China fell 14% year-over-year versus a 1% decline in exports to the US. This may be an ominous sign that global demand for consumer goods made in China -- to which Korea provides inputs earlier in the supply chain -- is softening, Neil Shearing, group chief economist at Capital Economics, wrote on Monday. Hong Kong’s exports also sank 14.3% in August, the most since the pandemic first began in early 2020.

Plunging freight rates also point to cooling exports: A 40-foot container from Shanghai to Los Angeles fetched $3,779 last week, below $4,000 for the first time since September 2020 and half what it was three months ago, Bloomberg reported. More declines are expected in the coming weeks, according to Drewry Supply Chain Advisors.

The news couldn’t come at a worse time, with the offshore Chinese yuan now trading at the weakest since May 2020 -- just a stone’s throw away from its record low -- and economists rushing to cut China’s 2023 economic-growth forecasts. Dollar-yuan may need to go a lot higher to boost China’s exports meaningfully; the Chinese currency has advanced versus most of Beijing’s trade partners, outside of the US and Hong Kong, for much of 2022.

Chinese exporters already are holding foreign currencies more tightly. The conversion ratio -- which measures the share of export revenues converted into yuan -- fell from 57% in the first eight months of 2021 to 36% this year through August, according to Macquarie economists Larry Hu and Yuxiao Zhang. If that ratio holds steady, an extra $118 billion could have been sold by exporters into yuan, Macquarie estimates.

Falling Chinese export volumes and expectations of a weaker yuan will only make exporters more reluctant to sell their dollars. The yuan’s downtrend isn’t likely to reverse unless that negative feedback loop is broken.

Tyler Durden Mon, 09/26/2022 - 21:15

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Science

Enemy turned ally: Ancient viral genes protect the brain against new infections

From the common cold to COVID-19, viruses have a massive impact on our day-to-day lives, but infections that occurred millions of years ago have shaped…

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From the common cold to COVID-19, viruses have a massive impact on our day-to-day lives, but infections that occurred millions of years ago have shaped our evolution. This is because viral genes have been incorporated into the DNA of the infected host and then passed down the generations, often developing different functions over time. Now, in a study published in Development, Dr Fumitoshi Ishino, Professor of Molecular Biology at Tokyo Medical and Dental University, Japan, and Dr Tomoko Kaneko-Ishino, Professor of Molecular Biology at the Tokai University, in Kanagawa, Japan, have discovered that two mouse genes, left behind by a viral infection millions of years ago, have evolved to help defend the brain against new infections.

Credit: Image courtesy of Tomoko Kaneko-Ishino

From the common cold to COVID-19, viruses have a massive impact on our day-to-day lives, but infections that occurred millions of years ago have shaped our evolution. This is because viral genes have been incorporated into the DNA of the infected host and then passed down the generations, often developing different functions over time. Now, in a study published in Development, Dr Fumitoshi Ishino, Professor of Molecular Biology at Tokyo Medical and Dental University, Japan, and Dr Tomoko Kaneko-Ishino, Professor of Molecular Biology at the Tokai University, in Kanagawa, Japan, have discovered that two mouse genes, left behind by a viral infection millions of years ago, have evolved to help defend the brain against new infections.

The genes in question, known as ‘retrotransposon Gag-like’ 5 and 6 (Rtl5/Rtl6), are carried by almost all mammals, and are similar to genes found in retroviruses, such as HIV. The researchers were convinced that the genes must be doing something important, as despite coming from viruses, these inherited viral genes have been preserved in the mammalian genome for at least the last 120 million years. To work out what these genes are doing the scientists needed to know where they are active, so they looked for RTL5/6 proteins, which are only produced when genes are switched on. They discovered that Rtl5 and Rtl6 are switched on in the brain in cells called microglia, which act as the ‘first responders’ to infection. Dr Kaneko-Ishino said, “we never expected that Rtl6 and Rtl5 would function in microglia when we started this work 15 years ago, and even when we knew that Rtl6 was a microglial gene we didn’t understand its significance. Our ‘eureka moment’ came during a dissection when Dr Ishino was carefully removing a mouse brain. We realised that if instead we damaged the brain, we could activate RTL6”.

The team set up fake infections in mice brains to test how the microglia producing RTL5 or RTL6 would respond to either bacteria or viruses. They found that microglia containing RTL6 protein responded to the bacteria-like mimic, whereas the microglia with RTL5 reacted to the simulated viral infection. In addition, when the researchers removed the Rtl6 gene, they found that the mice could not eliminate the fake bacterial infections, while the mice without Rtl5 could not clear the viral mimics, meaning that together Rtl5 and Rtl6 protect the brain against two of the most common types of infection.   

These results provide the first example of viral-derived genes that have been re-purposed to protect mammalian brains against infection. The idea that viruses have had such a positive impact on our lives may be surprising, but examples like Rtl5 and Rtl6 demonstrate that viral invaders can, in the long run, benefit their host. According to Dr Ishino, “virus-acquired genes are essential parts of our genome, playing various – but essential – roles in mammalian and human development. We think it is possible to extend this idea to primate- and human-specific acquired genes from retroviruses to help us understand human evolution”.


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