Axioma Risk Monitor
Equity edition

Market tremors give a boost to low volatility names; UK risk jumps amid Brexit-related political turmoil; Countries in the red worldwide




Market tremors give a boost to low volatility names


Market gyrations are driving investors to the safety of lower volatility names. The Volatility factor posted negative three-month returns in all regions Axioma tracks closely. That is, low volatility stocks outperformed their higher volatility counterparts over this period. Most notably, Volatility returned -8.2% in Canada for the past three months, for a cumulative six-month return of -11.6%. The magnitude of Canada’s six-month volatility return was the highest among all geographies, followed by Asia Pacific ex-Japan (-7.1%) and the UK (-6.1%). In contrast, the style factor in Australia saw positive cumulative one-month (1.2%) and six-month returns (1.4%). Volatility returns of this magnitude may have a much larger than expected negative impact on returns of portfolios that have even a small positive exposure to the factor.

See graph from the Canada Equity Risk Monitor as of 13 December 2018:


UK risk jumps amid Brexit-related political turmoil


With global volatility surging, the UK market was further rattled by Theresa May’s postponing of the Brexit-related vote in the British Parliament and the challenge against her leadership (which she survived). The FTSE 350 index posted small gains last week, but losses at the one-, three-, and six-month horizons. The short-horizon risk of the FTSE 350 saw the biggest jump last month (of more than 220 basis points) among the regions Axioma tracks closely. Still, the UK remains the second-least risky (in local currency) after Canada among the regions Axioma covers. The UK’s short-horizon risk was 15% last Thursday, as reported by Axioma’s short-horizon fundamental model. Interestingly, the statistical and fundamental forecasts converged at both short and medium horizon, after diverging a month ago.

See graph from the UK Equity Risk Monitor as of 13 December 2018:



Countries in the red worldwide


Stocks dropped in both developed and emerging markets in the past six months, bringing the six-month total returns (denominated in USD) of individual countries well below zero. Luxemburg, China and Ireland were the worst performers, each with six-month returns below -17%. Only Brazil, Russia, Hungary, Israel and New Zealand reported positive returns in the last six months. Brazil took the lead, with a six-month return exceeding 20%. Perhaps unsurprisingly, as country returns plunged, their risk surged. The volatility of individual countries ranged between 10% and 23%, as measured by Axioma’s short-horizon Worldwide fundamental model. Greece, China and South Korea’s risk climbed above 20%, making them the riskiest countries as of last Thursday. The least risky emerging country was Czech Republic.

See graph from the Equity Risk Monitors as of 13 December 2018:



Stay Connected


RECORDING | Axioma Insight™ 2018 Risk Review

In this webinar, Melissa R. Brown, Managing Director of Applied Research, discussed the major themes driving risk across markets in 2018, and did a deeper dive into factor returns that likely impacted portfolios.

Watch recording here.

Webinar | Look Back, Look Ahead: Q4 2018 Risk Review

January 9, 2018 | 11:00 AM ET / 4:00 PM GMT

In this webinar, Melissa R. Brown, Managing Director of Applied Research, will review the risk environment during 2018, paying particular attention to the fourth quarter. She will focus on aspects of risk that changed the most, driving the necessity for investors and risk managers to be even more vigilant.

Register here.

Webinar | Axioma Insight™ Q4 2018 Risk Review, APAC & Outlook for 2019

January 10, 2018 | 10:00 AM HKT / 11:00 AM JST

In this webinar Olivier d’Assier will identify the key drivers of market risk in Q4 and touch upon what 2019 may bring.

Register here.


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