Axioma Risk Monitor
Equity edition

Russell 2000 not much riskier than Russell 1000; Small caps thrive in China; The euro keeps its cool




Russell 2000 not much riskier than Russell 1000


Both the Russell 1000 and Russell 2000 rebounded strongly in 2019, recouping the losses of the previous quarter. The Russell 2000’s six-month cumulative return of about 24% exceeded that of the Russell 1000. But the risk of the smaller-cap index is now only about 2.6 percentage points higher than that of the Russell 1000’s at 13.6%, as measured by the US Small Cap and US4 short-horizon fundamental models, respectively. The ratio between the Russell 2000 and Russell 1000 short-horizon risk of 1.2, indicates that the Russell 2000 is only about 20% riskier than the Russell 1000. This suggests that investors’ return expectations for small-cap stocks do not need to be significantly higher than large-caps’ to justify taking on the relative risk. Also worth noting is that statistical variants of the US Small Cap model are in agreement with their fundamental counterparts at both the short- and medium-horizons, suggesting there is not something “bubbling under the surface” that is being picked up by the statistical model.

See graph from the USSC4 Equity Risk Monitor as of 11 April 2019:


Small caps thrive in China


Chinese stocks have surged this year, with smaller companies benefiting the most from the market climb. The Size factor in Axioma’s medium-horizon fundamental model has been falling since February. The style factor recorded strong negative returns over the past week, month, and three and six months. That is, smaller capitalization stocks strongly outperformed large-caps over these horizons. The -8% cumulative six-month return to Size is the largest in absolute terms among all style factors in the China model. In contrast, large-caps have been outperforming in most other geographies Axioma tracks closely. The UK saw the highest positive six-month return to Size, at +6%.

See graph from the China Equity Risk Monitor as of 11 April 2019:



The euro keeps its cool


The European common currency has remained calm amid the economic slowdown in Europe, the tumult around Brexit, and the European Central Bank’s decision last week to keep its policies unchanged. The euro is not only positioned at the low-end of its volatility range against the US dollar, but it is also among the least volatile of major developed currencies. The euro’s 5% volatility was the fourth lowest after the Singaporean dollar, Swiss franc and South Korean won. However, the euro has weakened substantially against the US dollar over the past six months, recording losses of close to 4% over this period. The euro was the worst performer against the US dollar, after the Swedish krona and Norwegian krone.

See graph from the Equity Risk Monitors as of 11 April 2019:



Stay Connected


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.

Webinar Recording | Axioma Insight™ Q1 2019 Risk Review

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

Watch here.


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