Axioma Risk Monitor
Equity edition

Value stocks tank in the US; Developed currency risk near record lows; Japanese stocks – the big losers among developed countries




Value stocks tank in the US


Value style investing, frequently used as a defensive strategy, greatly underperformed other style investing strategies in the US. As of last Thursday, the Value style factor recorded strong negative results over the past month, three months, and six months. Value’s -3.33% six-month cumulative return was the largest negative six-month return among all style factors in Axioma’s US medium-horizon fundamental model. Value’s volatility is now close to the high end of its six-month volatility range. However, Value’s volatility remains in the middle of the pack among style factors in the US model.

Value’s first quarter return was a little more than two standard deviations below the long-term average (based on expected volatility at the beginning of the quarter for the US all-cap universe). Value also produced negative returns in most other regions, falling below that two standard deviation threshold in Japan and the Worldwide model as well. For more details on factor returns for Axioma’s models during Q1 2019, please see the blog post, A Tough Quarter for Systematic Managers?

See graph from the US Equity Risk Monitor as of 4 April 2019:


Developed currency risk near record lows


Developed market currencies in aggregate have seen a sharp drop in volatility relative to the US dollar. The aggregate level of risk hit an almost 5-year low last week. With the exception of a point in time in August 2014 (when it reached 1.5%), developed currency risk hasn’t been this low in at least 20 years. Developed currency risk has been declining since May of last year and dipped to 1.7% last week, as revealed by Axioma’s medium-horizon fundamental Developed Markets model. Developed currencies saw the highest level of risk—at 6.5%—in March 2009.

A closer look at the major components of risk show that, while market risk drove the year-to-date decline in Developed Market risk, small drops in style risk and country risk contributed to the total decrease in risk. In terms of the other components of risk, industry and stock-specific risk (which is only a small part of total benchmark risk) have been relatively flat since the beginning of the year.

See graph from the Developed Markets Equity Risk Monitor as of 4 April 2019:



Japanese stocks – the big losers among developed countries


Japanese stocks rebounded in 2019, but failed to recover from the steep drop in the fourth quarter of last year. Japan’s six-month total return of near -5%, denominated in US dollars, was the most negative among those of major developed countries. Austria and Norway were the only other developed countries to register negative six-month returns, and most emerging-market countries saw positive returns that in many cases were higher than for developed market countries. While its six-month return is negative, the Japanese market is up in 2019, and Japan’s risk is correspondingly down about 700 basis points year to date. However, its volatility of 16% still positions Japan as the riskiest among major developed countries, as measured by Axioma’s short-horizon Worldwide fundamental model, and based on stocks in Axioma’s worldwide universe, denominated in US dollars.

Similarly, Axioma's short-horizon fundamental Japan model showed a 16% risk forecast for the FTSE Japan index, denominated in Japanese yen—the highest level of risk among all regions Axioma tracks closely.

See graph from the Equity Risk Monitors as of 4 April 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

A Tough First Quarter for Systematic Managers?

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