Axioma Risk Monitor
Equity edition

Stocks inch higher, despite renewed virus fears
Global Info Tech weight and index risk contribution rise
US Value falls as Size climbs




Stocks inch higher, despite renewed virus fears


Most equity markets, including China, posted five-day gains for the week ended on Thursday, despite reports of a surge in coronavirus cases in China. At the beginning of the week, amid increased optimism over containment of the outbreak, some US indices posted fresh records. By Wednesday, however, news of a spike in virus cases in China weighed on stocks around the globe, but indices worldwide ticked down only a little, remaining close to record highs. Almost all developed and emerging countries reported positive six-month returns (denominated in US dollars). Some of the exceptions were Hong Kong and Chile, where markets have been battered by months of domestic political upheaval. The Philippines, Thailand and Indonesia were also positioned below the red line.

Volatility levels remained high, with China, Hong Kong and South Korea seeing some of the largest increases in volatility since the beginning of the year, as measured by Axioma’s short-horizon Worldwide fundamental model and based on stocks in our worldwide universe, denominated in US dollars. Still, the aggregate risk for FTSE Emerging and FTSE Developed markets remained below their respective 15-year medians, as measured by Axioma’s short-horizon fundamental Emerging and Worldwide models, respectively.

See graph from the Equity Risk Monitors as of 13 February 2020:


Global Info Tech weight and index risk contribution rise


The index weights and contributions to risk of most sectors in the FTSE Developed have remained remarkably steady, even as the benchmark climbed and its risk fell over the past six months. FTSE Developed reported a cumulative six-month return above 14% last week, while the benchmark risk fell more than 200 basis points over the same period, as measured by Axioma’s Worldwide medium-horizon fundamental model.

The major exception is Information Technology, which saw an increase in both weight and, proportionally, risk contribution. Technology stocks continued to drive the rise in the global developed market into 2020. The Info Tech sector posted a year-to-date return of about 10% last week, the highest among all 11 sectors in the FTSE Developed index. Info Tech’s weight in the FTSE Developed is now close to 19%, while the sector’s contribution to benchmark risk is 4.5 percentage points higher than its weight.

See graph from the Global Developed Markets Equity Risk Monitor as of 13 February 2020:



US Value falls as Size climbs


The US Value factor dropped in the past four weeks, as news of stronger-than-expected earnings reports and employment data sent US indices to new highs. The Value style factor in Axioma’s US medium-horizon fundamental model reported a monthly cumulative return of -1.31% as of last Thursday. Value posted losses not only over the past month, but also over the past three- and six-months, and most recently over the past five days. For more insights on Value’s poor performance, see blogpost Value Takes a Beating as Tech Stocks Surge.

In contrast, US Size took off, recording a cumulative monthly gain of 1.84%. Size saw gains for all four horizons mentioned earlier. That is, US large capitalization stocks strongly outperformed their smaller cap counterparts over these periods. Size became the best performer among the style factors in the US model over the past six months, posting the highest six-month gain, of over 4%.

See graph from the US Equity Risk Monitor as of 13 February 2020:



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