Axioma Risk Monitor
Equity edition

US market among the top performers—but still one of the riskiest
US small-cap stocks lag large caps
Profitability and Low Volatility outperform in China




US market among the top performers—but still one of the riskiest


The US saw one of the strongest recoveries among both emerging and developed markets since the worldwide collapse of stocks earlier in the year. After hitting fresh records in the beginning of the week, the US market dropped sharply—led by the selloff in technology companies—and finished the week relatively flat. The US six-month return remains near the top, with only Denmark, Sweden, Germany and Turkey seeing higher gains (denominated in US dollars) over the same period.

Only a month ago, China, Taiwan, Korea and Denmark were the only countries with positive six-month returns. As of last week, all major developed and emerging countries were in the black. Risk has retreated substantially for most countries over the past six months, but the US remains one of the riskiest developed countries. Switzerland and Russia are now among the least risky countries, as measured by Axioma’s US Worldwide short-horizon fundamental model. .

See graph from the Equity Risk Monitors as of 3 September 2020:


US small-cap stocks lag large caps


While most stocks participated in the US rebound, small-cap stocks have been unable to cover their massive February-March losses. Smaller companies in the US have been hit much harder by pandemic-related lockdowns, with the Russell 2000 recording a year-to-date cumulative loss of 40% in mid-March, while the Russell 1000 recorded a 30% loss around the same time. Both large- and small-cap stocks have since rebounded strongly, but, as of last Thursday, the Russell 2000’s year-to-date cumulative return was still negative (at -7%) while Russell 1000’s return was positive (+9%).

After climbing above 50% in April, the risk of the Russell 2000 hovered around that level until June, when it began to decline, as measured by Axioma’s US Small Cap short-horizon fundamental model. In contrast, Russell 1000 risk started to fall right after hitting its year-to-date peak of 42% in April, as measured by Axioma’s US All Cap short-horizon fundamental model. The gap between short-horizon risk forecasts for the Russell 2000 and Russell 1000 has widened since March, when the two were at parity. As of last Thursday, the Russell 2000 was more than 40% riskier than its large cap index counterpart. This relative level of risk for the Russell 2000 has not been seen since 2018.

See graph from the US Small Cap Equity Risk Monitor as of 3 September 2020:



Profitability and Low Volatility outperform in China


Investors have been dialing back their interest in risky assets in China over the past six months, with the Volatility factor experiencing a nose-dive over the past couple of months, while Profitability took the spotlight in the opposite direction. The Volatility factor has been breaking away from the pack for a while in Axioma’s China fundamental medium-horizon model, recording a cumulative six-month return of -7%. That is, low-volatility strategies fared well in China over this period. Profitability recorded the largest positive six-month return in the China model at 6%. In fact, Profitability recorded positive returns at the one-week and one-, three-, and six-month horizons.

See graph from the China Equity Risk Monitor as of 3 September 2020:



Stay Connected


Webinar | How to Invest in the UN Sustainable Development Goals (SDGs)

Date: September 10, 2020
Time: Select Preferred Presentation

How do you identify SDG investments and what are Sustainable Development Investments? Join us as we tackle these questions and more with the Sustainable Development Investments Asset Owner Platform (SDI AOP), comprised of four leading global asset owners: APG, AustralianSuper, British Columbia Investment Management Corporation and PGGM.

Acting as exclusive distributors for the SDG data that has been developed by the SDI AOP, we invite all asset owners and asset managers* to learn about the initiative in this webinar.

Register here >

Webinar Recording | Qontigo Insight™ Quarterly Multi-Asset Risk Review

Watch this webinar to hear more about how this ongoing disconnect between bond markets and stock markets affected multi-asset class portfolio risk.

Watch the recording here >

On the Blog

Stressed-Out Dividend Yield Strategies Could Leave Some Wiggle Room in Your Risk Budget

Active strategies that tilt on dividend yield were a big casualty of the Covid-19 pandemic, dividend yield ETFs substantially underperforming the US market and seeing a surge in active risk. Stress tests revealed a silver lining: further widespread dividend cuts would lower the funds’ active risk, freeing-up some of the risk budget for other, more profitable, strategies.

Current Nagging Concerns—and One Bit of Good News—for Active Managers in the US

The US market hit an all-time high this week. So are we finally out of the volatility woods? Not by a longshot. While US predicted risk as measured by Qontigo’s short-horizon fundamental model has retreated substantially, it remains in the top decile of values relative to where it has been historically. It would have to drop by almost 50% from its current level just to get back to the long-term median.

Latest Research

Where is There Room to Grow? Assessing the Capacity of Factor Investing Strategies

Using a comprehensive set of global “smart beta” exchange-traded funds (ETFs), in conjunction with factor risk premia and transaction cost estimates from Axioma Factor Risk Models, we find that the market of smart beta strategies capturing equity factors has room to grow, and rebalancing costs are not expected to exceed factor premia for some time.


Qontigo Commentary: Coronavirus’ Impact on Markets

Over the past few months, the world has been greatly affected by the extensive spread of the COVID-19 virus. To help our subscribers better understand the impact of these events, Qontigo's Applied Research team put together a collection of market analysis and commentary.

Qontigo ROOF Scores

Qontigo's ROOF Scores were created to quantify market sentiment — bullish or bearish? ROOF is an acronym for Risk-On/Risk-Off market conditions; the Scores are calculated from the factor returns to eight style factors from Axioma’s fundamental factor risk models, plus two indicators of changing market volatility. 


MiFID II Statement: Axioma (now part of Qontigo) believes that the research we provide falls outside the purview of the MiFID II regulations, which are intended to provide transactional transparency and unbundle research and trading costs. Axioma does not provide recommendation research, is not a regulated company and our business is not transactional. As such, we do not believe that we are subject to MiFID II regulation. For more information, please click here: MiFID II Statement.

Axioma  17 State Street, 2700    New York  NY  10004  United States