Axioma Risk Monitor
Equity edition

European Financials suffers steep losses; US asset diversification remains low; Turkish lira back in the spotlight




European Financials suffers steep losses


Financial shares in Europe have been driven down by negative interest rates, Brexit-related anxieties, concerns of a global economic slowdown, and the European Central Bank’s policy reversal three weeks ago, resulting in the introduction of new stimulus. The Fed’s postponing of interest-rate increases also drove down European Financials, which became the worst performer among the 11 sectors in the FTSE Developed Europe index. Although Financials still posted a cumulative year-to-date return of 8% as of last Thursday, it recorded an active return of -4% against FTSE Developed Europe. The risk of the sector ticked up about 10 basis points, even as the overall benchmark risk continued to slide last week. Financials has the highest weight (19%) in the FTSE Developed Europe, and its contribution to the benchmark risk exceeded its weight by almost 100 basis points. This suggests that a bet on that sector could introduce more active risk than expected.

US financial stocks were also pulled down by the Fed’s decision, and despite the rebound over the past week, they were the second biggest loser after Health Care in the Russell 1000. US Financials has recorded a year-to-date cumulative return of 9%, slightly higher than European Financials. But US Financials’ contribution to the risk of the Russell 1000 was slightly lower than its weight of 12%.

See graph from the Developed Europe Equity Risk Monitor as of 28 March 2019:


US asset diversification remains low


As investors try to decide if the recent market sell-off is the start of a recession or only a bump in this year’s rally, US portfolio managers face a reduced ability to diversify their portfolios than they had last year, as we can see in the low level of the diversification ratio of the Russell 1000, which is now nearing historically low levels. The asset diversification ratio is calculated as the weighted average of the total risk forecast for each stock in the Russell 1000, divided by the total forecasted index risk, and measures the impact of correlations—which started to climb in March—on total risk. After reaching a near-term high of close to 5.0 at September-end of last year, the ratio dropped abruptly in the fourth quarter of 2018, and has been hovering around 2.5 this year, as measured by Axioma’s US4 fundamental medium-horizon fundamental model. The highest level of this ratio in the Russell 1000 over the past 22 years (close to 9) was seen at the end of 2017. Asset diversification remained low in all other regions Axioma covers closely, except in Emerging Markets.

See graph from the US Equity Risk Monitor as of 28 March 2019:



Turkish lira back in the spotlight


The Turkish lira plunged again ahead of local elections, despite Turkish government efforts to support the currency. After the Turkish currency crisis last summer, the lira recovered, propped by a sharp increase in interest rates by the Turkish central bank in September. Even with the recent loss of ground, the lira recorded the best performance against the greenback among both major emerging and developed currencies over the past six months, with a six-month return of close to 23% last week. At the same time, although positioned near the low-end of its six-month volatility range against the US dollar, the lira remains the riskiest currency, with a volatility of 23%.

See graph from the Emerging Market Equity Risk Monitor as of 28 March 2019:



Stay Connected


Webinar | Axioma Insight™ Q1 2019 Risk Review

Date: April 10, 2019
Time: 11:00 AM EDT / 4:00 PM BST

In this webinar, Melissa R. Brown, Managing Director of Applied Research, will discuss the major drivers of the change in risk during the first quarter and provide a comprehensive picture of the risk environment impacting investor portfolios.

Register here.

Webinar | Axioma Insight™ Quarterly Multi-Asset Risk Review

Date: April 16, 2019
Time: 10:00 AM HKT / 11:00 AM JST

In this quarterly webinar, we will review recent market events and discuss the key risk factors driving volatility in global markets with an emphasis on their impact on Asia Pacific portfolios. 

Register here.


On the Blog

Who Wins and Who Loses, if Gold Keeps Rising?

If gold continues to rise, as equities fall in a “risk-off” environment, who are the likely winners and losers?

Cloud native vs. cloud hosted: The differences are big…and they matter

The cloud is “in.” But dig a little deeper, and you find that firms have simply switched to a cloud-hosted infrastructure, rather than a thoroughly modern cloud-native environment.

The impact of Fed policy on portfolio risk and diversification

As the latest US rate-hiking cycle enters its final phase, market participants are paying ever-closer attention to comments and actions of Federal Reserve Bank officials.

Latest Research

A Survey of ESG Vendor Data: Strategies for Managing Score Differences

Using a small set of different ESG vendors, Anthony Renshaw, Ph.D., Director of Index Solutions at Axioma, examines how pervasive ESG disparities are and what drives material differences in vendor scores.

Catch Me If You Can - Capturing Runaway Asian Spreads in the Equity World

In this research note, we use the newly released APAC ex-Japan model from Axioma (AX-APxJP4) to construct an equity portfolio of high-yield issuers and use the new fundamental style factors in the model to draw a parallel between the equity and the bond world.

In the News

Mire Cardenas Named Risk Professional of the Year by WatersTechnology

Mire Cardenas, Global Head of Client Services for Axioma, has been named Risk Professional of the Year in the Women in Technology & Data Awards hosted by WatersTechnology.

The ‘Global Technology Crisis’: Modernize or Bust

According to Axioma CEO Sebastian Ceria, the investment management industry has a technology crisis on its hands, driven by firms' failure of institutions to modernize.

Axioma Risk Monitor

A Weekly Report on Market Risk

The Axioma Risk Monitor reports use Axioma’s solutions to bring you insights on trends in market and portfolio risk. You can subscribe to both the multi-asset class and equity edition here.


MiFID II Statement: Axioma 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