We wish to share our YTD performance and share some commentary about our economic outlook and the ongoing trade situation.
Through 09/30, our strategy (for aggressive risk profile only) returned +38.8% net of fees compared to +12.8% for the S&P 500 Index.
Our annualized net return is +15.3% since inception, which is above the +15.0% return by the index over the same period. Check the app or our custodian’s website to see your performance. Keep in mind that individual performance may vary depending on the date of onboarding, the timing of cash flows, and other factors.
Commentary
Despite suffering a significant drawdown of over 20% in Q3, our portfolios continue to outperform the S&P 500. The third quarter was incredibly tough as the AI trade soured. To shield our gains, we limited our exposure to AI bets and repositioned our top holdings, as noted in our monthly portfolio snapshot emails.
Nonetheless, we firmly believe that the AI-shovel strategy will outperform in the near term as evident in continued capex investments by hyperscalers. Semiconductor and memory chip makers will continue to benefit from surging demand from the AI build out. We do not expect DRAM advancements like Chinese CXMT’s 4F² design that boosts memory density, to significantly affect multi-year customer contracts by major memory chip makers. Rather, we foresee increased adoption of cloud-based personal AI assistants that are always-on / always-reachable, e.g. Meta’s Muse or OpenAI’s dots. This on-the-go AI further entrenches AI compute needs and stretches out AI infra buildout timelines.
Beyond technology, inflation and higher interest rates remain a macro headwind due to geopolitical instability and the energy supply shock. We do not anticipate material improvement on this front and so expect the US Federal Reserve to maintain its hawkish policy. The bond market remains turbulent and mortgage rates are exceptionally high. Despite the exuberance for AI, activity growth in the rest of the economy is fundamentally meager. We need to hunker down now and identify the next big bets that can drive our outperformance when the tides turn.
For the rest of the year, we plan to focus our research efforts on improving our ability to leverage AI to identify such qualifiers for our portfolio as well as monitor shifting market sentiments. We want to increase the speed of our reaction to shifting tides. In fact, over the past few weeks, we made efforts to strengthen both our equity research as well as systematic portfolio management. For more details, please take a look at this paper.
Form ADV updates
Lastly, our address has changed. Our new address is below along with updated Form ADV Part 2A that reflects the new address:
XANTOS LABS, LLC 5900 Balcones Drive, Suite #34050 Austin TX, 78731
As always, we would love to hear from you and your experiences. Please email us or reach our via in-app chat anytime!
