Developed Countries

Special Report

Highlights Contrary to popular belief, the correlation between changes in interest rates and equity returns is not fixed: Stock prices have generally risen as yields have fallen over the last four decades, but there is no rule that states equity returns and bond yields will be inversely related. Tech stocks’ tight recent inverse correlation with interest rates is a new phenomenon and we expect it will be temporary: Relative differences in earnings have driven relative returns since the global financial crisis and their mirror image correlation with interest rates was a pandemic anomaly that has already withered. Rising interest rates are not a good reason for equity investors to reduce their Tech exposures: The conventional wisdom is not always wrong, but it almost never generates alpha. In this case, we believe the crowd has fallen for a fleeting illusion that will not persist. Feature Table 1Lapping The Field Perhaps nothing has lately generated more consensus agreement among equity strategists and other top-down observers than the claim that Tech stocks are particularly vulnerable to rising interest rates. Thanks to the Tech sector’s track record of generating outsized growth (Table 1), its future earnings streams are expected to be larger for longer than other sectors’, making them somewhat akin to long-maturity bonds from a duration perspective. Go-go growth stocks and Treasuries make for strange bedfellows, no matter how logical the earnings-stream reasoning may appear to be at first glance, and we view the application of duration concepts to equities as a stretch in any event. In this Special Report, we make the case that the recently observed tight inverse correlation between relative Tech sector performance and the 10-year Treasury yield is anomalous and should not be expected to persist. Right Church, Wrong Pew Duration is the weighted-average term to maturity of a bond’s cash flows and describes its price sensitivity to changes in interest rates. It is an essential feature of fixed income markets but attempts to extend the concept to equities necessarily fall flat. Bondholders receive interest and principal payments subject to a contractually fixed schedule that makes valuing a bond, especially one with negligible credit risk, a simple exercise in arithmetic. The present value of any bond (PV) is equal to the sum of its discounted series of cash flows, as in the equation , where x = one of a series of n semi-annual payments, r = the discount rate and t = the time in years when the next payment will be received. Assuming that all the interest payments and the principal payment will be received on time, the only variable term in the bond present value equation is the discount rate, r. As r appears solely in the denominator, a bond’s present value is inversely related to its moves. The cash streams accruing to stockholders are inherently unpredictable, however, and the present value of an equity interest is subject to fluctuations in the realized and estimated future values of x as well as changes in discount rate r. Forces that move r may or may not also move x and it is uncertain whether the numerator or denominator will exert a greater impact if they move together, as they might be expected to do in the case of the high-growth Tech sector. The explanatory power of changes in interest rates weakens as cash flow uncertainty increases. Month-over-month changes in the 10-year Treasury note yield1 explain virtually all the variation in one-month Bloomberg Barclays Treasury Index total returns (Chart 1, top panel). As cash flows become more uncertain with the introduction of modest credit risk, the correlation slips to -40% (Chart 1, middle panel). It weakens even further and flips its sign with equities, which have done better since the financial crisis when the 10-year yield rises than when it falls (Chart 1, bottom panel). Bottom Line: Duration is a metric for measuring bonds’ price sensitivity to changes in interest rates. Because of the uncertain nature of a company’s future cash flows and the multitude of independent variables that influence them, duration is an ill fit with equities. The Post-Crisis Experience The empirical record poses several challenges to the conventional wisdom about Tech stocks and interest rates, beginning with their desultory relationship in the first ten years following the financial crisis. From 2009 through 2018, changes in the 10-year yield are unable to explain any of the variability in relative Tech returns, though they exhibit a tight correlation beginning in 2019 (Chart 2). Tech stocks were utterly indifferent to the yield spikes of 2009 and 2010-11, as well as the sharp intervening decline in 2010, and only began to separate themselves from the field following the Brexit vote, outperforming the overall S&P 500 by 30 percentage points in just two years while the 10-year yield rose from 1.5% to 3%. They then proceeded to blow away the index as yields fell from 2.75% at the end of 2018 to 0.5% at the mid-2020 COVID bottom and have since fought the index to a draw despite a 100-basis point backup above 1.6%. Chart 2Nothing More Than A Lockdown Fling In contrast to their all-over-the-map relationship with the level of interest rates, Tech stocks have exhibited a consistently tight fit with relative trailing earnings. A quantitatively inclined visitor from outer space viewing Chart 3 might reasonably conclude that relative Tech stock performance is fully explained by earnings, and all other variables are noise. The series have moved nearly in lockstep with each other and show that Tech’s relative trailing P/E multiple has been quite stable since the crisis. Until relative prices and relative earnings began heading in separate ways as the latter began to slip this Spring, Tech’s relative post-crisis outperformance had entirely been earned, not given. Chart 3Case Closed? Multiples provide an opportunity for interest rate changes to re-enter the discussion. In a direct sense, Tech earnings are comparatively immune to moves in interest rates (the sector’s biggest constituents have immaterial amounts of debt and do not sell big-ticket items that have to be financed), though one might expect the price investors are willing to pay to claim a share of their comparatively backloaded future cash flows may well fluctuate with them. Chart 4, however, shows that the Tech sector’s relative forward multiple has not exhibited a consistent relationship with rates – the correlation between multiples and rates was positive and fairly strong from 2009 through 2018 but weakened and turned negative beginning in 2019. From 1995, when the forward multiple series began, through 2008 (not shown in the chart) the relationship was very weak and negative, generating an r-squared of just 1.4%. Chart 4Defying The Duration Intuition The relationship between relative four-quarter forward earnings expectations and the 10-year yield sheds some light on how so many observers have been hoodwinked into mistaking correlation for causation. Excepting stretches at the beginning and the end of the 2009-2018 period, when relative forward estimates paid no heed to swings in interest rates, they exhibited a modest negative correlation with the 10-year yield (Chart 5). They moved together with one mind across all of 2020, but that solidarity appears anomalous when viewed against the entire post-crisis record generally and the years that bracket it specifically. In 2018-19, the two years preceding peak pandemic conditions, and 2021, the year following them, Tech’s relative forward earnings expectations have been flatly indifferent to the rate backdrop. Chart 5One-Off We submit that the recently observed tight correlation between the 10-year yield and relative forward earnings expectations is an isolated pandemic phenomenon. As bond yields plunged in 2020 due to extraordinary monetary accommodation and fears of a worst-case economic outcome, Tech’s heavy concentration of pandemic winners shot the lights out in terms of actual and projected earnings. Away from the narrow 2020 sample, however, the other twelve years of post-crisis data suggest that there’s no relationship between forward earnings expectations and interest rates. Tech outearned the broader market at a steady rate for the ten years preceding the pandemic without regard for the rates market’s gyrations. Investment Implications Interest rates are a red herring for explaining variations in relative Tech stock performance. The ubiquity of the view that Tech stocks’ relative performance will be heavily influenced by changes in interest rates turns out to be another instance in which something everybody knows turns out not to be true. This finding does not make us Tech bulls; we think the big-picture backdrop is sufficiently mixed to justify our US Equity Strategy and Global Asset Allocation services’ neutral recommendations. We simply wanted to call out the flaws in a popular notion before it becomes even more entrenched. Changes in interest rates do not solely effect equity prices via a denominator effect. They impact the numerator as well. The numerator impacts are multifaceted and vary based on which factor comes to the fore in a given instance. They are much harder to anticipate and therefore hold much more promise for investors who can suss them out in advance. The denominator effect is immediately apparent to any undergraduate who has been introduced to the time value of money and therefore isn’t likely to generate alpha. What’s more, as Tech stocks’ relative performance history illustrates, the relationship between equities and rates is not fixed. The rise of globalization and the Fed’s post-Volcker inflation vigilance ushered in a multi-decade disinflationary trend that ultimately culminated in rampant deflation fears following the global financial crisis. Now that concerns about stagflation have shunted aside concerns about secular stagnation, investors are much less likely to cheer rate backups while wringing their hands over rate declines. As Arthur Budaghyan, BCA’s Chief Emerging Markets strategist, has written, the about-face in market perceptions of interest rates could flip the correlations between equity prices and interest rates from positive (stocks advance as rising interest rates are perceived as evidence of economic improvement) to negative (stocks fall when rates rise and rise when rates fall). Our colleague Jonathan LaBerge, managing editor of the Bank Credit Analyst, has noted that extended valuations increase growth stocks’ vulnerability to rising interest rates. We do not disagree, but they do not have all that much to fear if the backup in Treasury yields is in line with our US Bond Strategy service’s year-end 2021 and 2022 targets of 1.75% and 2-2.25%, respectively. Tech’s outperformance may well have run its course – relative performance is extended, the law of large numbers makes it increasingly difficult to sustain historic growth rates, the legal and regulatory outlook is darkening and a shift from pandemic winners to pandemic losers may be in train – but rising rates alone are not a good basis for trimming Tech exposures.   Doug Peta, CFA Chief US Investment Strategist dougp@bcaresearch.com Footnotes 1 Duration measures a bond’s sensitivity to a parallel shift in the yield curve, but we use the 10-year Treasury yield as a proxy for the entire curve in our simple regressions of asset class returns against price changes.

In the coming weeks, we will continue our series of thematic Special Reports by conducting a “deep dive” analysis of cybersecurity stocks. This is a pervasive investment theme, and we recommend it as a new structural overweight. While cybersecurity is not new to the investment community, it is still in the early innings: The pandemic-driven shift to remote work, broad-based migration to cloud computing, development of the internet-of-things, and increasing geopolitical tensions create new targets for hackers who are after valuable data or just want to achieve maximum damage to the networks.  With cybercrimes costing the world nearly $600 billion each year,1 and cyber-attacks increasing in number and sophistication, the global cybersecurity market is expected to grow from $125 billion in 2020 to $175 billion by 2024.2 Both large and small businesses are yet to fully implement cybersecurity defenses. According to a survey by Forbes magazine, 55% of business executives plan to increase their budgets for cybersecurity in 20213 aiming to prevent malicious attacks. These developments, are a boon for the cybersecurity stocks, making them an attractive long-term investment. In the upcoming Special Report, we will discuss the outlook and the key drivers of the industry, the types of cyber security defenses and companies behind them, and evaluate the fundamentals and valuation of our cyber security basket. We will draw investment conclusions to gauge the theme’s prospects as a tactical (three to six months investment horizon) investment. Bottom Line: Stay tuned for an upcoming Special Report on cybersecurity equities in the coming weeks. Top three cybersecurity ETFs by AUM are: CIBR, HACK, and BUG.   Footnotes 1Mordor Intelligence, 2020. 2IDC, “Ongoing Demand Will Drive Solid Growth for Security Products and Services, According to New IDC Spending Guide,” Aug 13, 2020. 3Forbes, 2020

Dear client, In addition to this week’s brief report, we presented at our annual BCA conference on the challenges to the US dollar’s reserve status. If you missed the session, please contact your account representative for a replay. Kind regards, Chester   Highlights The gold/silver ratio is relapsing anew. This has historically been a bearish omen for the dollar. Many petrocurrencies have lagged the rise in oil prices, and offer a very attractive carry. Go long a basket of oil producers (NOK, RUB, MXN and COP) versus the euro. Currency volatility is too low, and is bound to rise. Stay long CHF/NZD on this basis. Remain tactically long EUR/GBP as a play on slight policy convergence between the UK and the euro area. Feature Chart I-1Being Short The Dollar Has Hurt This Year Investing in currencies is tough. One of the reasons is that the currency market is the melting pot of a confluence of catalysts. These range from relative growth dynamics, policy divergences, sector biases that dictate portfolio flows and politics, among many other factors. Our bias has always been that acting on perfect information is a highly improbable feat because we are not insiders. As such, in April 2020, we designed a rules-based model to see if, over time, currencies could be traded purely based on publicly available information. Our results, grounded on the fundamental basis that has defined the BCA approach, was a positive surprise (Chart I-1). Armed with this conviction, this week’s bulletin is focused on a few themes we have held and trading opportunities around these. In a nutshell, a positive bias on any currency can be calibrated on a good macro catalyst, a valuation cushion, and going against the consensus. An Inflation Hedge On A Reflationary Boom It is becoming more evident that inflation might prove stickier than most policymakers expect. This is bad news for real interest rates. Negative real rates have been historically positive for gold and other precious metals. Within this sphere, our preference has been silver. First, silver is a reflationary metal and tends to do well when global growth is strong and the dollar is falling (Chart I-2). Since the onset of the COVID-19 crisis, silver has had a near-perfect negative correlation with the dollar (Chart I-3).   Chart I-2Gold, Silver, And the Dollar Chart I-3Silver Is A Good Reflation Play There are also an economic and valuation cases to be made for silver. Economically, silver is a byproduct of both copper and zinc mining, which have had supply-side disruptions. Meanwhile, a boom in goods demand has boosted the demand for silver, which mainly goes into electronics production. The combination is leading to a deficit in the silver demand/supply balance (Chart I-4). On the valuation side, the fair value for the gold/silver ratio is near 50, which has been the mean since the 18th century (Chart I-5) Chart I-4Silver Has A Supply Deficit Chart I-5Gold Is Expensive Relative To Silver   Fundamentally, both silver and gold are precious metals. Just like gold, silver benefits from low interest rates, plentiful liquidity, and the incentive for currency wars and fiat money debasement. However, the gold/silver ratio tends to peak when the environment migrates from reflationary to inflationary (Chart I-6). As such, silver is a good inflationary hedge amidst a reflationary boom. This brings us to the sweet spot for silver. Even if global growth remains tepid over the next few months, a lot of the bad news is already reflected in silver prices, especially vis-à-vis gold. Relative speculative positioning hit a low of -25% as a percent of open interest. Relative sentiment on gold is 10% higher relative to silver. This is bullish from a contrarian perspective (Chart I-7). Chart I-6Silver Does Well With Rising Inflation Chart I-7Silver Has Been Shunned Relative To Gold Higher Currency Volatility Currency volatility is likely to rise in the coming months. Options markets offer many opportunities to trade this theme, but being long CHF/NZD is an attractive bet as well (Chart I-8). The kiwi is backed by a very hawkish central bank that will likely dial back its rhetoric amid much uncertainty about the growth outlook. Meanwhile, the kiwi is expensive according to most of our models. As such, we expect the kiwi to rise vis-à-vis the greenback over a cyclical horizon, but we feel it is at risk on a tactical basis. Chart I-8CHF/NZD Tracks Dollar Volatility The RBNZ has decided to introduce house price considerations into its mandate. While this is politically palatable, it is economically unviable as rising real estate prices are a global phenomenon. The risk is that a hawkish RBNZ tilts the economy over, especially if the current environment is stagflationary. As such, we are short the NZD at the crosses. Our long AUD/NZD position is based on policy convergence between Australia and New Zealand and our long CHF/NZD is based on rising currency volatility. We were stopped out of our long CHF/NZD position and are reinitiating the trade today. A Play On Higher Oil Prices Oil prices are likely to stay elevated in the coming months. But even if they relapse, a bet on being long oil producers versus consumers could still prove profitable. Petrocurrencies have lagged the performance of oil tremendously (Chart I-9). This is especially the case when looking at oil-producing countries versus oil-consuming ones. RUB, COP, and MXN are trading well below their implied levels relative to the USD, EUR, and RMB. Chart I-9Petrocurrencies Will Catch Up With Oil Price A lot of oil players are seeing a rebound in their economies, as their populations get vaccinated. Russia, Mexico, Brazil, and Colombia all have lower new COVID-19 incidences, compared to earlier this year and versus the US (Chart I-10). As a result, economic activity is rebounding in these countries relative to the US (Chart I-11). Our bias is that the dollar will resume its cyclical bear market in the coming months. This will push up many petrocurrencies, as the path of the dollar usually dictates the performance of many developed and emerging market currencies (Chart I-12). Chart I-10A Drop In Infections Outside The US... Chart I-11...Leading To A Recovery In Growth       Chart I-12Petrocurrencies Track The Dollar The big risk is a slowdown in China, which will have a meaningful impact on oil demand. The Chinese credit impulse correlates quite well with commodity and oil currencies, and therefore, should the impulse slow further, this will meaningfully impact import demand (Chart I-13). Our bias is that there is little downside to the credit impulse in China, while the imperative to stimulate the economy could be rising. So far, the authorities have been able to ringfire the crisis with no meaningful capital outflows (Chart I-14). Chart I-13China Slowdown A Risk... Chart I-14...But No Systemic Risk Yet   On the sentiment and valuation fronts, the case for petrocurrencies is more compelling. Starting with valuation, all of our models show many petrocurrencies as deeply undervalued. On a real effective exchange rate basis, the MXN, COP, and BRL are trading well below historical averages (Chart I-15). On the sentiment front, it is true that many petrocurrencies have lagged the increase in oil prices amid domestic demand concerns. This is bound to change as populations get vaccinated and their economies reopen. More importantly, many petrocurrencies sport very attractive real rates (Chart I-16). If our bias on a dollar decline proves correct, then the carry will be an added bonus. As such, we recommend going long a basket of RUB, COP, and MXN against the euro Chart I-15Most Petrocurrencies Are Cheap Chart I-16Petrocurrencies Have An Attractive Carry   Chester Ntonifor Foreign Exchange Strategist chestern@bcaresearch.com Currencies U.S. Dollar Chart II-1USD Technicals 1 Chart II-2USD Technicals 2 The US economy remains relatively robust: Retail sales came in at 1.8% month-on-month in September, well above consensus of an 0.8% increase. Sentiment in the US is drifting lower, according to the Michigan survey. The current conditions component of the index slipped from 80.1 to 77.9 in October. The sentiment component also fell from 72.8 to 71.4. Portfolio flows into the US remained strong with net TIC inflows of $US 126bn. Both housing starts and building permits rose in September. Ditto for existing home sales, that increased from 5.88mn to 6.29mn. The US dollar DXY index fell this week. The general tone to markets has been risk on, which has led to less demand for the safe-haven dollar. Meanwhile, according to CFTC data, speculators are very long the dollar which is bearish from a contrarian perspective.   Report Links: Arbitrating Between Dollar Bulls And Bears - March 19, 2021 The Dollar Bull Case Will Soon Fade - March 5, 2021 Are Rising Bond Yields Bullish For The Dollar? - February 19, 2021 The Euro Chart II-3EUR Technicals 1 Chart II-4EUR Technicals 2 Euro area data was mixed this week: New car registrations fell by 23% year-on-year in September. The trade balance came in at €11.1bn, a robust number but below expectations of a €14.2bn surplus. Consumer confidence keeps deteriorating in the euro area amidst the energy crisis. The euro was up 0.2% this week. EUR/USD has had a wild ride in recent weeks, having breached below 1.16. That said, the tides are turning in favor of the euro. Speculators are short the currency, and interest rate expectations for the euro area are bombed out relative to other developed markets. This provides room for positive surprises.  Report Links: Relative Growth, The Euro, And The Loonie - April 16, 2021 The Euro Dance: One Step Back, Two Steps Forward - April 2, 2021 On Japanese Inflation And The Yen - January 29, 2021 The Japanese Yen Chart II-5JPY Technicals 1 Chart II-6JPY Technicals 2 Recent Japanese data has been mixed: Condominium sales fell be 6.7% year-on-year in September. Trade remains robust. Exports rose by 15% year-on-year, while imports surged by 38.6% year-on-year. Supermarket sales increased 3.2% year-on-year in September. The yen rose 20bps this week. We were bullish the yen around 109, and even more bullish at current levels. The two things that have thrown this view offside are 1) an abrupt rise in US yields, that has attracted Treasury bids from Japanese investors and 2) profit taking by foreign investors who did catch the Japan outperformance in August. On the other side of the coin, the yen is now one of the most shorted G10 currencies, and Japanese data has been so poor relative to the rest of the G10 that some measure of catchup is due. Report Links: The Case For Japan - June 11, 2021 The Dollar Bull Case Will Soon Fade - March 5, 2021 On Japanese Inflation And The Yen - January 29, 2021 British Pound Chart II-7GBP Technicals 1 Chart II-8GBP Technicals 2 The key data release out of the UK this week was the inflation report: Headline CPI came in at 3.1% year-on-year in September, in line with expectations. Core CPI came in at 2.9% year-on-year in September, in line with expectations. RPI an PPI came in at 4.9% and 11.4% respectively. The pound rose by 0.3% this week. The UK is dealing with and energy and inflation crisis, similar to the rest of the world. This is bringing forward expectations of a rate hike by the BoE, which we believe would be the wrong approach should inflation subside. We are bullish sterling on a cyclical horizon, but are also long EUR/GBP tactically as a play on a policy convergence between the BoE and the ECB. Report Links: Why Are UK Interest Rates Still So Low? - March 10, 2021 Portfolio And Model Review - February 5, 2021 Thoughts On The British Pound - December 18, 2020 Australian Dollar Chart II-9AUD Technicals 1 Chart II-10AUD Technicals 2 The was scant data out of Australia this week: The services PMI rebounded strongly in September, from 45.5 to 52. The manufacturing PMI remained robust, rising from 56.8 to 57.3 in October. As a result, the composite PMI improved from 46 to 52.2. The AUD rose 0.6% this week. The AUD is sitting on a coiled spring and ripe for a rebound. First, the energy crisis is bullish for Australia as it is one of the largest coal and natural gas exporters. Second the AUD is cheap, especially on a terms of trade basis. At the crosses, we are long AUD/NZD as a play on these trends. Report Links: The Dollar Bull Case Will Soon Fade - March 5, 2021 Portfolio And Model Review - February 5, 2021 Australia: Regime Change For Bond Yields & The Currency? - January 20, 2021 New Zealand Dollar Chart II-11NZD Technicals 1 Chart II-12NZD Technicals 2 The was scant data out of New Zealand this week: CPI exploded higher, rising 4.9% in the third quarter. Credit card spending was down 12.9% year-on-year in September. The NZD rose by 1.2% week. The inflation report out of New Zealand unsettled markets, pushing up bond yields significantly and propping the currency. Given the RBNZ has a mandate to consider house prices in policy settings, this has led to bets of more aggressive policy tightening in New Zealand. We continue to believe the NZD will fare well cyclically, but hawkish expectations from the RBNZ are already priced. This provides room for disappointment. We are long AUD/NZD on this basis. Report Links: How High Can The Kiwi Rise? - April 30, 2021 Portfolio And Model Review - February 5, 2021 Currencies And The Value-Versus-Growth Debate - July 10, 2020 Canadian Dollar Chart II-13CAD Technicals 1 Chart II-14CAD Technicals 2 Data out of Canada this week has been robust: The CPI report was buoyant. Headline came in a 4.4%, core-trim came in at 3.4%, core-median was 2.8% and core-common was 1.8% year-on-year. Foreigners continue to favor Canadian securities. Inflows for August rose to C$26.3bn, well above a prior print of C$14.2bn. The Business outlook survey from the Bank of Canada was robust in the third quarter, but thew future sales outlook did fall from 47 to 9, a sharp deterioration. The CAD was flat this week. On a cyclical basis, the CAD is backed by robust oil prices, and orthodox central bank that will raise rates to curb high inflation and real estate speculation, and an economy that remains on a recovery path. As such, our bias is that the path of least resistance for the CAD is up. Report Links: Relative Growth, The Euro, And The Loonie - April 16, 2021 Will The Canadian Recovery Lead Or Lag The Global Cycle? - February 12, 2021 The Outlook For The Canadian Dollar - October 9, 2020 Swiss Franc Chart II-15CHF Technicals 1 Chart II-16CHF Technicals 2 The Swiss economy is on the mend: Total sight deposits were flat at CHF 714bn in the week ended October 15. Exports rose 0.4% month-on-month in September, while imports fell 0.8% month-on-month. The money supply rose 3.2% in September, in line with the August print. CHF rose by 0.5% this week. CHF remains a good hedged against rising currency volatility, which we believe will materialize on a cyclical horizon. That said, the swiss franc will lag the euro and other European currencies, if our view of a pickup in growth next year proves correct. Report Links: An Update On The Swiss Franc - April 9, 2021 Portfolio And Model Review - February 5, 2021 The Dollar Conundrum And Protection - November 6, 2020 Norwegian Krone Chart II-17NOK Technicals 1 Chart II-18NOK Technicals 2 There was scant data out of Norway this week: The trade balance improved from NOK 42.6bn to NOK 53.7bn in September. The NOK was up 0.7% this week. High oil prices are a boost for the NOK, especially with the opening of the energy pipeline with the UK. We also favor the NOK on valuation grounds. Stay short EUR/NOK and USD/NOK. Report Links: The Norwegian Method - June 4, 2021 Portfolio And Model Review - February 5, 2021 Revisiting Our High-Conviction Trades - September 11, 2020 Swedish Krona Chart II-19SEK Technicals 1 Chart II-20SEK Technicals 2 There was scant data out of Sweden this week: The unemployment rate fell from 8.5% to 8.2% in September. The SEK rose 15 bps this week. We are short both EUR/SEK and USD/SEK as reflation plays. The SEK will rise very quickly should the Chinese credit impulse bottom, a likely event in our view. Meanwhile, the central bank will end QE this year and could bring forward expectations of a rate hike. Report Links: Revisiting Our High-Conviction Trades - September 11, 2020 More On Competitive Devaluations, The CAD And The SEK - May 1, 2020 Sweden Beyond The Pandemic: Poised To Re-leverage - March 19, 2020 Trades & Forecasts Strategic View Cyclical Holdings (6-18 months) Tactical Holdings (0-6 months) Limit Orders Forecast Summary

Weekly Performance Update For the week ending Thu Oct 21, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Total Weekly Return BCA US Portfolio S&P500 TRI 0.81% 2.52% Top Contributors   MMP:US TGT:US SHW:US WAT:US GRMN:US Weekly Return 22 bps 16 bps 15 bps 13 bps 13 bps Top Detractors   SIM:US KOF:US AMN:US PM:US MBT:US Weekly Return -20 bps -9 bps -9 bps -7 bps -6 bps Top Prospects   AMN:US GOOG.L:US KOF:US WAT:US MPLX:US BCA Score 95.32% 92.78% 92.55% 91.15% 90.42% BCA Canada Portfolio Total Weekly Return BCA Canada Portfolio S&P/TSX TRI 1.52% 1.89% Top Contributors   STN:CA ONEX:CA BTE:CA SMU.UN:CA ATZ:CA Weekly Return 32 bps 24 bps 20 bps 16 bps 14 bps Top Detractors   IFP:CA TOU:CA TOY:CA EMP.A:CA H:CA Weekly Return -19 bps -12 bps -8 bps -8 bps -5 bps Top Prospects   ELF:CA WIR.UN:CA TOU:CA IMO:CA TOY:CA BCA Score 97.98% 96.59% 96.56% 94.60% 93.58% BCA UK Portfolio Total Weekly Return BCA UK Portfolio FTSE 100 TRI 0.88% -0.22% Top Contributors   DEC:GB YOU:GB NLMK:GB N91:GB VVO:GB Weekly Return 19 bps 16 bps 15 bps 14 bps 14 bps Top Detractors   KETL:GB FXPO:GB BVIC:GB STEM:GB MGNS:GB Weekly Return -20 bps -11 bps -10 bps -7 bps -6 bps Top Prospects   VVO:GB ROSN:GB SVST:GB TUNE:GB JHD:GB BCA Score 99.54% 99.09% 98.39% 96.40% 96.39% BCA Eurozone Portfolio Total Weekly Return BCA EMU Portfolio MSCI EMU TRI 0.78% 0.52% Top Contributors   TTALO:FI SOF:BE BSL:DE SHUR:BE PMAG:AT Weekly Return 15 bps 12 bps 11 bps 11 bps 10 bps Top Detractors   ERF:FR SES:IT SOL:IT ARG:FR FSKRS:FI Weekly Return -16 bps -8 bps -5 bps -4 bps -4 bps Top Prospects   ROTH:FR HLAG:DE FSKRS:FI STR:AT SOL:IT BCA Score 98.71% 98.00% 97.79% 96.11% 95.97% BCA Japan Portfolio Total Weekly Return BCA Japan Portfolio TOPIX TRI 0.69% 0.70% Top Contributors   8097:JP 4958:JP 8739:JP 6676:JP 9436:JP Weekly Return 15 bps 15 bps 12 bps 7 bps 7 bps Top Detractors   3003:JP 2208:JP 9532:JP 8133:JP 9543:JP Weekly Return -11 bps -10 bps -4 bps -3 bps -3 bps Top Prospects   6960:JP 9436:JP 9882:JP 9422:JP 4544:JP BCA Score 99.41% 99.39% 99.23% 98.77% 97.35% BCA Hong Kong Portfolio Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI -0.14% 4.23% Top Contributors   316:HK 3306:HK 2768:HK 1600:HK 323:HK Weekly Return 30 bps 19 bps 10 bps 9 bps 9 bps Top Detractors   6118:HK 1708:HK 1277:HK 1967:HK 1866:HK Weekly Return -67 bps -25 bps -13 bps -12 bps -8 bps Top Prospects   1277:HK 746:HK 857:HK 1088:HK 43:HK BCA Score 100.00% 99.66% 98.36% 97.78% 97.05% BCA Australia Portfolio Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 0.76% 1.43% Top Contributors   SXY:AU PWH:AU MHJ:AU AVN:AU ZIM:AU Weekly Return 52 bps 21 bps 18 bps 18 bps 18 bps Top Detractors   CGS:AU NHC:AU ABB:AU ERA:AU MMS:AU Weekly Return -27 bps -26 bps -13 bps -13 bps -11 bps Top Prospects   MHJ:AU RIC:AU BLX:AU ADI:AU CDD:AU BCA Score 99.51% 98.87% 98.07% 97.81% 97.71%