Axioma Risk Monitor
AXIOMA RISK MONITOR
MULTI-ASSET CLASS EDITION

Sovereign yields fall, despite strength in equities
Yen and dollar benefit from European concerns
Equity volatility keeps falling, but bond co-movement offsets benefits

 

HIGHLIGHTS FOR THE WEEK ENDED AUGUST 20

 
 

Sovereign yields fall, despite strength in equities

 

Sovereign bond prices rose, as yields fell, in the week ending August 21, 2020, following the announcement of higher-than-predicted unemployment claims in the United States on Thursday. This seemingly contrasted yet again with the strong performance of the stock market, where American blue-chip indices climbed once more to record highs, in defiance of the disappointing job news. However, as in previous weeks and as we noted in our recent blog post, stock-market performance was predominantly driven by large tech stocks, namely Apple, Microsoft, Facebook, and Alphabet. Without these, US equity indices would have been mostly flat for the week, while most European equity benchmarks would have posted negative returns.

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Please refer to Figure 4 of the current Multi-Asset Class Risk Monitor (dated August 21, 2020) for further details.

 


Yen and dollar benefit from European concerns

 

The yen exhibited the strongest performance among all major currencies in the week ending August 21, 2020, gaining 0.5% against the US dollar, which, in turn, appreciated 0.2% against a basket of major trading partners. A strengthening JPY is usually a sign of decreasing risk appetites, as Japanese investors are known for being risk averse and repatriating their funds when things go badly in other parts of the world. The major European currencies, in contrast, all declined in value—emulating the respective underperformances of their stock markets—as they were hit by a combination of disappointing economic surveys, a renewed tightening of travel restrictions, and concerns about the lack of progress in the Brexit negotiations.


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Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated August 21, 2020) for further details.

 


Equity volatility keeps falling, but bond co-movement offsets benefits

 

Short-term risk in Qontigo’s global multi-asset class model portfolio continued its downward trend driven by lower equity volatility, falling 0.8% to 7.1% as of Friday, August 21, 2020. Part of the benefit was, however, offset by the renewed co-movement of stock and bond prices, which both rose last week. The risk reduction was most notable in the US equity category, which saw its share of overall volatility drop four percentage points to 41%. Non-US papers, on the other hand, benefitted less, as their perceived return variance was amplified by a positive interaction with exchange rates.


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Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated August 21, 2020) for further details.

 


 

 
 
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Events

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.


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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

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.

Odds Are Good that Markets Will Keep Rising… as Long as Volatility Declines

Many pundits have called the recent market rally a bubble, reminiscent of the tech bubble of the late ‘90s. But a bubble is characterized by a cycle of ever-increasing and lofty return expectations. Declining volatility is making the current market bull run possible with declining return expectations. To quote Alanis Morissette, “Isn’t it ironic, don’t you think?”

Latest Research

Alpha Calibration: Aligning Your Portfolio Construction Process for Optimal Results

For both quantitative and fundamental managers, alpha calibration is a critical part of the optimal portfolio construction process – but are you doing it right? Most optimization processes include an objective function with one or more terms. When multiple terms are included, managers often mix and match the scaling of the terms which is asking the optimizer to compare apples to oranges and leads to less relevant or suboptimal allocations.

Insights

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. 



 
 

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