Axioma Risk Monitor
Equity edition

Volatility rises as global health emergency is declared
US Utilities take on a defensive role
The Japanese yen strengthens amid virus scare




Volatility rises as global health emergency is declared


The ripple effects of the coronavirus outbreak reverberated worldwide, with investors becoming increasingly concerned about the epidemic’s impact on global economic growth. Stocks fell and volatility rose, after the World Health Organization declared the outbreak an international health emergency last week. The latest chart of global volatility hotspots was littered with upward arrows, reflecting sharp increases in volatility at the individual country level. Axioma’s Worldwide short-horizon fundamental model showed that volatility rose more than one percentage point last week, particularly for countries in Europe and Asia.

Top-line risk rose much more for emerging markets than for developed markets. Over the past week, the short-horizon risk forecast rose 140 basis points for FTSE Emerging Markets and only 40 basis points for Developed Markets (up 10% and 4%, respectively), as measured by Axioma’s short-horizon fundamental Emerging Markets and Worldwide models, respectively.

See graph from the Equity Risk Monitors as of 30 January 2020:


US Utilities take on a defensive role


Utilities stocks in the US climbed as equity markets around the globe took a hit last week. Defensive sectors, such as Utilities, would be expected to rise under such conditions and that is already evident. Utilities’ year-to-date cumulative return of 7% last Thursday was on par with that of Information Technology—investors’ favorite for a while now. Utilities and Information Technology were the best performing sectors in the Russell 1000 year to date. Utilities’ return for January 2020 was at a level not seen since the global shock of the Brexit vote in June 2016.

That said, Utilities’ impact on the overall US benchmark was small. Utilities’ weight in the Russell 1000 was less than 5% last week, which is a fifth of Info Tech’s weight. Utilities contribution to benchmark risk was half its weight in the Russell 1000, and the lowest among all 11 sectors in the US index. Utilities’ weight and contribution slightly exceeded their levels of six months ago. For more insights into US Utilities’ risk and performance year to date, see blog post Investors Turn to Utilities to Immunize Portfolios Against Coronavirus Volatility.

See graph from the US Equity Risk Monitor as of 30 January 2020:



The Japanese yen strengthens amid virus scare


The Japanese yen strengthened against the US dollar last week, as investors flocked to perceived safe-haven currencies amid the virus scare. The yen’s gains against the greenback were also boosted by the US Federal Reserve’s decision to keep interest rates unchanged last week. The Japanese currency moved further away from the low end of its six-month return range against the US dollar. Still, the yen posted the largest six-month loss against the US currency (of about 3%) among major developed market currencies. In contrast, the British pound recorded the highest six-month gain against the US dollar, of over 7%. In terms of risk, the yen remained among the least risky developed market currencies, while the British pound kept its status as the riskiest developed currency last week.

See graph from the Equity Risk Monitors as of 30 January 2020



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On the Blog

Investors Turn to Utilities to Immunize Portfolios Against Coronavirus Volatility

Investors flocked to US Utilities, a defensive sector that could help immunize portfolios against volatility caused by the growing coronavirus outbreak.

What does it take to recover from the coronavirus? Mostly time and liquidity.

As both cases and news about the coronavirus are spreading fast across the world, many investors are asking how they can prepare for the impact of a possible wider outbreak.

To Combine Factors or To Combine Portfolios? That Is the Question for the Smart Beta Investor…

The launch of the STOXX factor indices has enabled us to do more research into a variety of factor-related topics. One issue that has vexed us recently is whether a smart-beta investor seeking broad and diversified exposure to a number of style factors is better off combining a series of individual-factor indices, or using a single index that targets an alpha that comprises the same factors.


Latest Research

Deeper Insight Into Fixed Income Portfolios: Factor-based Attribution and Portfolio Construction with a DTS-style Risk Model

The ability to attribute portfolio risk and performance to key factors is an essential tool for helping portfolio managers to understand their risk and interpret their results. It is notoriously difficult, however, to build such models for bond portfolios. Advanced modeling techniques are required, so that the factor returns used to measure portfolio risk reliably capture systemic risk rather than noise.

STOXX Factor Indices: Targeted Factor Exposures with Managed Liquidity and Risk Profiles

This paper provides a comprehensive description of the STOXX factor Indices and an extensive discussion of their characteristics and performance.

In the News

Qontigo adds Axioma Factor-based Fixed Income Risk Model to its Fixed Income Solutions Suite

This model leverages Qontigo’s market-leading expertise and research capabilities in the equity factor space with insights into systematic macro and style factor exposures to meet the growing demand for factor-based investing in fixed income.

Qontigo Combines Index and Analytics Expertise in STOXX Factor Indices

Qontigo has launched the STOXX Factor Index suite, bringing together the powerful indexing and analytics capabilities of Qontigo.

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