Axioma Risk Monitor
AXIOMA RISK MONITOR
MULTI-ASSET CLASS EDITION

Sovereign yields deviate on opposite sides of the pond
Dollar and stock market diverge once more…but for different reasons
Portfolio risk rises for first time since March

 

HIGHLIGHTS FOR THE WEEK ENDED SEPTEMBER 4

 
 

Sovereign yields deviate on opposite sides of the pond

 

Yields on high quality sovereign bonds moved in different directions on each side of the Atlantic in the week ending September 4, 2020. The 10-year US Treasury benchmark surged by 10 basis points on Friday—offsetting a similar-sized, gradual decline earlier in the week—following an announcement that 1.4 million new jobs had been created in the world’s largest economy last month. The Eurozone, meanwhile, recorded in August its first monthly fall in consumer prices since May 2016, adding pressure on the European Central Bank to further increase its already substantial asset-purchasing program. As a result, German Bund yields dropped across the entire maturity spectrum in a so-called bullish flattening, which implies that longer rates declined more than shorter rates. This meant that the Eurozone reference curve was once more entirely below zero, with maturities up to 9 years yielding less than a central-bank deposit at -0.5%.

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Please refer to Figures 3 & 4 of the current Multi-Asset Class Risk Monitor (dated September 4, 2020) for further details.

 


Dollar and stock market diverge once more…but for different reasons

 

The US dollar appreciated against most of its major trading partners in the week ending September 4, 2020, as American blue-chip stock indices experienced their biggest weekly drop since the end of June. These moves appear to be a continuation of the inverse interaction of the greenback and the US stock market, which we have been observing since early March, but the underlying reasons for each may be different. Most of last week’s dollar strength was driven by a weakening of European currencies on Wednesday, reflecting a perception that European economies could require larger doses of fiscal and monetary stimulus than their North American counterpart. The stock-market correction, on the other hand, happened on Thursday and Friday and was once more led by the “big tech” companies, although it also propagated to the rest of the market.


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Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated September 4, 2020) for further details.

 


Portfolio risk rises for first time since March

 

Short-term risk in Qontigo’s global multi-asset class model portfolio rose for the first time since late March, climbing 0.7% to 7.0% as of Friday, September 4, 2020. The increase was caused by a combination of higher exchange-rate and stock-market volatility, along with a less negative interaction of equity and bond returns. The latter reflected last week’s simultaneous price declines of shares and US Treasuries. The impact was most evident in the US equity bucket, which saw its share of overall portfolio volatility surge by 9 percentage points to 53%. US Treasuries and investment-grade corporate bonds, on the other hand, appeared to be largely unaffected and still showed slightly negative risk contributions.


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Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated September 4, 2020) for further details.

 


 

 
 
Stay Connected
 
 

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.


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.

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