October 2021 Qraft AI ETFs - Rebalancing Key Takeaways
About Qraft Technologies
Founded in 2016, Qraft Technologies is on a mission to innovate the asset management process. From AI-powered ETFs to AI Order Execution, we seek to leverage AI to expand the capability of finding alpha without exponentially increasing the cost to achieve this goal.
The name Qraft is a portmanteau of the words ‘Quant’ and ‘Craft’, conveying the purpose of the company in crafting quantitative solutions for clients using our propitiatory AI technology. Qraft’s in-house, vertically integrated, AI suite offers it the ability to be nimble and always adapt to the changing needs and condition of the market. Qraft aims to continue to develop and provide a full comprehensive suite of AI-powered enabling services for financial firms, from building portfolio (Asset Allocation Engine), data handling (Kirin API), identification of alpha (Alpha Factory), to order execution (AXE). Our goal is to use technology to increase the accessibility of financial products for people everywhere.
October Key Takeaways
While economic growth continues in the US, the pace of recovery seems to be much slower than what was optimistically predicted in the past. The Delta-variant has played a part in adding to uncertainty, even while its infection peak has passed. China has been experiencing a series of slowdowns, which many investors worry may impact US markets[1].
US consumer sentiment has turned and is currently at the lowest point year to date. Consumers have been impacted by the end of the federal eviction moratorium as definitively decided in the Supreme Court in September[2], with many now facing months of unpaid rent due. It is estimated that there are over 6 million renters who owe a cumulative $41 billion in rent[3]. Federal unemployment benefits have also ended for millions of people, and many economists are worried that the rapid downward trend in unemployment figures actually indicates that many of those who have benefited from unemployment have decided to stay out of the labor markets[4] altogether. Labor shortages persist in key industries such as shipping and logistics, creating supply bottlenecks for many companies. This is coupled with the highest gas prices since 2014, further driving up operating costs.
With the Fed announcing that unemployment is the last hurdle to be cleared before it starts tapering asset purchases, October will be a crucial month in deciding when this taper starts[5].
Key Takeaways NVQ
Decrease in consumer discretionary sector
NVQ consumer discretionary holdings decrease from 23.35 to 8.18%
While economic growth continues, it is seen as slower than expected and consumer confidence index & sentiment indices are at this year’s low[6]
Consumer discretionary may also have been impacted greatly by cuts in COVID era benefits to millions of Americans
Big bet on big energy?
Energy sector comprises 24% of all holdings, up from 1.72% in September, representing a near 14-fold increase with the addition of Exxon, Chevron, and Conoco Phillips
Gas prices are highest in many places in the developed world since 2014[7]
Natural gas prices are up more than 150% in the last year
Exxon Mobil, top NVQ holding, starts JV with SABIC[8], Chevron acquires Neste base oils business[9], and ConocoPhillips acquires Shell Permian Basin for $9.5 billion[10]
Intel remains top pick for three months & continuing supply issues for semiconductors
Intel continues its rebuilding process as CEO announces that “Intel is back” with announcement of new generation chips
Breaks ground on $20 billion facility in Arizona[11] and announced plans of investing $80 billion on European facilities aimed to target the automobile sector[12]
Supply & demand issues that started at the beginning of the pandemic has not abated
Intel will continue to benefit from built-up demand on a multi-year basis
Semiconductor shortage hurts automakers -Ford removed from holdings
Ford is one of the top stocks out of the portfolio as it struggles to overcome the semiconductor supply issues faced by most automakers
It is estimated that supply shortages will now cost the automotive industry $60 billion as opposed to $210 billion predicted earlier this year[13]
Key Takeaways AMOM
Facebook woes continue with Instagram whistleblower
Facebook removed from holding as it faces idiosyncratic risk from whistleblower exposing Facebook’s prior knowledge of Instagram’s harmful effects on teenagers[14]
Much publicized WSJ expose on this issue increases scrutiny on an already embattled company due to privacy and neutrality issues leading to new product delays
Construction market turns around
Lowe’s and Home Depot are in the top three holdings this month
Holdings in Home Depot has increased more than 45%, month to month
Housing permits have increased for two straight months[15], which is seen as indication that problems earlier in the year with construction supplies are fading
Labor shortages are expected to improve in the future as benefits are being cut, providing much needed labor to the construction industry
Are some retail businesses better positioned to ride out supply issues?
Amazon continues to be the top holding and Target has also been added to holdings
Amazon has been able to solve labor issues by offering incentives to employees
Continues to boast a strong supply chain system, with one of the largest air cargo fleets in the world
Target increases employee incentives to capture holiday revenue and have ordered inventory having foreseen supply issues
AMOM on course to predict profit-taking trade for DocuSign again?
AMOM has been able to carry out profit-taking trades in DocuSign in the past year
Key Takeaways HDIV
HDIV adds energy stocks to pursue high yield and growth strategy
Exxon & ConocoPhillips are some of the top names added, with both firms offering consistent dividend yields[16]
Both firms have announced major deals with ConocoPhillips acquiring Shell’s Permian Basin for $9.5 billion[17]
Energy sector is expected to continue to benefit from rising gas prices and supply issues
Firms offering consumer staples and high dividend yields round out top holdings
Positioned to protect against uncertain markets with staple names such as Verizon, P&G, and Pepsi
Home Depot expected to benefit from increase in construction activity
Construction activity has rebounded for the past few months
Sales of newly constructed homes have rebounded to pre-pandemic levels[18]
Merck sees success in COVID treatment molnupiravir
Molnupiravir has been used a COVID treatment in clinical trials and is expected to receive emergency use authorization from the FDA[19]
Share prices spiked 8.4% on October 1st alone
AbbVie finalizes agreement to partake in age-related vision degeneration treatment
$370 million agreement for the rights of RGX-314, a promising treatment against age related vision degeneration, a common disease estimated to affect nearly 200 million[20]
AbbVie has seen increases in dividends for 20 consecutive years[21]
Texas Instruments increase dividend
Increased in dividend to 13%, more than half of its free cash flow this year[22]
Key Takeaways QRFT
QRFT decrease tilt in quality factor
Decrease in quality factor 4.49 percentage points
QRFT increases momentum and size factor tilts
Increase in momentum and size factors by 3.18 and 1.04 percentage points respectively
Portfolio holdings should not be considered investment advice.
[1] Wolf, Martin. “The Economic Threats from China's Real Estate Bubble.” Financial Times, Financial Times, 5 Oct. 2021, https://www.ft.com/content/1abd9d4b-8d94-4797-bdd7-bee0f960746a.
[2] Liptak, Adam, and Glenn Thrush. “Supreme Court Ends Biden's Eviction Moratorium.” The New York Times, The New York Times, 27 Aug. 2021, https://www.nytimes.com/2021/08/26/us/eviction-moratorium-ends.html.
[3] Cembalest, Michael. “Dude, Where's My Stuff?: J.P. Morgan Private Bank.” Private Banking & Wealth Management, 27 Sept. 2021, link
[4] Morath, Eric. “Falling Unemployment Could Add to Worries about the U.S. Labor Market.” The Wall Street Journal, Dow Jones & Company, 3 Oct. 2021, https://www.wsj.com/articles/falling-unemployment-could-add-to-worries-about-the-u-s-labor-market-11633269601.
[5] Timiraos, Nick. “Fed Tees up Taper and Signals Rate Rises Possible next Year.” The Wall Street Journal, Dow Jones & Company, 22 Sept. 2021, https://www.wsj.com/articles/fed-tees-up-taper-and-signals-rate-rises-possible-next-year-11632333617.
[6] “Surveys of Consumers.” Surveys of Consumers, University of Michigan, http://www.sca.isr.umich.edu/.
[7] Krauss, Clifford, and Peter Eavis. “Energy Prices Spike as Producers Worry over Pandemic and Climate.” The New York Times, The New York Times, 4 Oct. 2021, https://www.nytimes.com/2021/10/04/business/energy-environment/oil-and-gas-prices-clean-energy.html.
[8] “Sabic, ExxonMobil JV in U.S. Preparing for Initial Startup.” Reuters, Thomson Reuters, 19 Sept. 2021, https://www.reuters.com/business/energy/sabic-exxonmobil-jv-us-preparing-initial-startup-2021-09-19/.
[9] “Neste Sells Base Oils Business to Chevron.” Reuters, Thomson Reuters, 4 Oct. 2021, https://www.reuters.com/business/energy/neste-sells-base-oils-business-chevron-2021-10-04/.
[10] Jessica Resnick-ault David French. “Shell Exits Permian with $9.5 Bln Texas Shale Sale to ConocoPhillips.” Reuters, Thomson Reuters, 21 Sept. 2021, https://www.reuters.com/business/shell-nears-deal-sell-texas-shale-assets-conocophillips-95-bln-wsj-2021-09-20/.
[11] Stephen Nellis. “Intel Breaks Ground on $20 Bln Arizona Plants as U.S. Chip Factory Race Heats Up.” Reuters, Thomson Reuters, 25 Sept. 2021, https://www.reuters.com/technology/intel-breaks-ground-20-bln-arizona-plants-us-chip-factory-race-heats-up-2021-09-24/.
[12] Victoria Waldersee Stephen Nellis. “Intel to Invest up to 80 Bln Euros in Boosting EU Chip Capacity-CEO.” Reuters, Thomson Reuters, 7 Sept. 2021, https://www.reuters.com/business/autos-transportation/intel-says-it-will-reserve-ireland-chip-factory-capacity-automakers-2021-09-07/.
[13] Cembalest, Michael. “Dude, Where's My Stuff?: J.P. Morgan Private Bank.” Private Banking & Wealth Management, 27 Sept. 2021, https://privatebank.jpmorgan.com/gl/en/insights/investing/eotm/dude-where-is-my-stuff.
[14] Wells, Georgia, et al. “Facebook Knows Instagram Is Toxic for Teen Girls, Company Documents Show.” The Wall Street Journal, Dow Jones & Company, 14 Sept. 2021, https://www.wsj.com/articles/facebook-knows-instagram-is-toxic-for-teen-girls-company-documents-show-11631620739?mod=article_inline.
[15] Cambon, Sarah Chaney. “U.S. Economy Is Expected to Pick up Speed after Delta-Driven Downturn.” The Wall Street Journal, Dow Jones & Company, 29 Sept. 2021, https://www.wsj.com/articles/u-s-economy-set-to-pick-up-speed-after-delta-driven-downturn-11632907800.
[16] Scheepers, Ferdi. “7 Best Energy Sector Dividend Stocks.” Dividend Strategists, Dividend Strategists, 12 July 2021, https://www.thestreet.com/dividendstrategists/dividend-ideas/7-best-energy-sector-dividend-stocks.
[17] Jessica Resnick-ault David French. “Shell Exits Permian with $9.5 Bln Texas Shale Sale to ConocoPhillips.” Reuters, Thomson Reuters, 21 Sept. 2021, https://www.reuters.com/business/shell-nears-deal-sell-texas-shale-assets-conocophillips-95-bln-wsj-2021-09-20/.
[18] Redfin. “Sales of New-Construction Homes Rebound to Pre-Coronavirus Levels, Rising 10% in July.” Sales of New-Construction Homes Rebound to Pre-Coronavirus Levels, Rising 10% in July, 25 Aug. 2020, https://www.prnewswire.com/news-releases/sales-of-new-construction-homes-rebound-to-pre-coronavirus-levels-rising-10-in-july-301117619.html.
[19] Hopkins, Jared S., and Betsy McKay. “Merck Pill Intended to Treat Covid-19 Succeeds in Key Study.” The Wall Street Journal, Dow Jones & Company, 1 Oct. 2021, https://www.wsj.com/articles/pill-intended-to-be-covid-19s-tamiflu-succeeds-in-key-study-11633082401.
[20] Bell, Jacob. “AbbVie Bets Big on a Gene Therapy for Eye Diseases.” BioPharma Dive, 13 Sept. 2021, https://www.biopharmadive.com/news/abbvie-regenexbio-eye-gene-therapy-deal/606473/.
[21] Withers, Rachel Warren and Brian. “Here's Why AbbVie Is a Great Healthcare Stock for Long-Term Investors.” The Motley Fool, The Motley Fool, 29 Sept. 2021, https://www.fool.com/investing/2021/09/29/why-abbvie-is-great-stock-for-long-term-investors/.
[22] Witkowski, Wallace. “Texas Instruments Hikes Dividend 13%, More than Half of Free Cashflow Paid to Stockholders.” MarketWatch, MarketWatch, 15 Sept. 2021, https://www.marketwatch.com/story/texas-instruments-hikes-dividend-13-more-than-half-of-free-cashflow-paid-to-stockholders-11631739226.