Fundamental equity managers want to know…what’s up with these violent rotations?

I just completed a two-day roadshow meeting with our institutional investor clients in Boston/ Providence. The good news is that I found multiple instances where my fundamental equity long-only clients widened their YTD relative performance in the month of August (they bought the dip!). But a few issues seemed to keep popping up.

Foremost on their minds, at the moment, is a fundamental explanation for the violent rotations seen in the past few days, meaning significant shifts in (i) small-caps up >1% 3 days in a row after selling off 7% in August; (ii) rotation out of secular growth into cyclical stocks (cloud vs semis); (iii) reversal of high P/E secular growers vs low P/E value within sectors; (iv) surge in graveyard/zombie sectors plus the macro reversals of: (i) interest rate increase and (ii) gold sell-offs. Anecdotes include: “it seems like all sector and factor bets are now just a function of interest rate moves” and another “suddenly, the market changed its mind about secular growth at any price.”

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