Axioma Risk Monitor
Equity edition

Europe’s risk plunges, despite ECB’s surprise move; High volatility stocks shine in China; Health Care stocks slide in the US




Europe’s risk plunges, despite ECB’s surprise move


Most European countries saw volatility and correlations decline sharply over the last week, despite the European Central Bank’s surprise announcement of fresh stimulus, which raised worries about European economic growth prospects. Charts of volatility and correlation hotspots were peppered with downward-facing green arrows for most European countries, indicating big drops in both over the last week. At an aggregate level, forecasted risk for the FTSE Developed Europe benchmark also saw sharp declines from the short horizon statistical and fundamental model variants of Axioma’s Developed Europe model. Still, Developed Europe’s short-horizon fundamental risk of 13% remains in the middle of the pack among the geographies Axioma covers closely.

See graphs from the Equity Risk Monitors as of 7 March 2019:


High volatility stocks shine in China


The Volatility factor had an outstanding positive performance in China, as the latest rally in Chinese stocks suggested a shift to “risk on”. The style factor recorded strong positive returns over the one-week and one-, three- and six-month horizons on Thursday. That is, high volatility stocks outperformed low volatility stocks over these periods, in marked contrast to the typically negative factor returns in most other regions Axioma tracks closely. The cumulative three-month Volatility-factor return in China exceeded 7% last week, driving a cumulative six-month return of 4%. That is the highest six-month return among all of the style factors of Axioma’s China medium-horizon fundamental model as of Thursday, after an abrupt downturn in the Size factor last week (also an indication of an increased appetite for risk). High volatility stocks also fared well in Australia and Emerging Markets—the only other regions that went against the global trend—recording positive six-month positive returns, but of much lesser magnitude than China’s. In contrast, low volatility investors fared best in Canada, where the six-month cumulative return to Volatility was -10.5% at the end of last week.

See graph from the China Equity Risk Monitor as of 7 March 2019:



Health Care stocks slide in the US


Last week’s downturn in Health Care stocks made the sector the worst performer among the 11 sectors in the Russell 1000. Health Care finished 2018 with the highest cumulative yearly return of 6.4% among the 11 sectors. However, in 2019, Health Care has been among the three worst performers for most of the year, with last week’s slide in Health Care stocks pushing the sector’s year-to-date return to the bottom (at 4.6%). The sectors benefiting the most from the market rebound to date in 2019 are Industrials, with a cumulative year-to-date return of 16%, followed by Energy (14%) and Information Technology (14%). In terms of risk, Health Care remains among the least volatile sectors (18%), placing third after Consumer Staples (14%) and Real Estate (16%). Energy is the riskiest sector so far this year, ending last week at 25.5%. Health Care’s contribution to the Russell 1000’s risk almost matched its weight in the benchmark last Thursday.

See graph from the US4 Equity Risk Monitor as of 7 March 2019:



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Webinar | Axioma Insight™ Q1 2019 Risk Review

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