Axioma Risk Monitor
AXIOMA RISK MONITOR
Equity edition

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

 

HIGHLIGHTS FOR THE WEEK ENDED APRIL 11

 
 
 

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
 
 

Events

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.


 

Latest Research

Q1 Insights: Risk Retreats Around the Globe

Stocks rallied around the globe in the first quarter of 2019, with most indices nearly recouping the steep losses of the previous quarter. The turnaround corresponded to a sharp decline in risk.

What, Exactly, Is a Factor?

There is no question that factor-based strategies have moved to the forefront of investing, but their growing popularity begs the basic question: what do we mean by “factor”?

On the Blog

Risk-On/Risk-Off and the Schrödinger Quadrant

The stock market’s version of the Ellsberg paradox states that investors exhibit ambiguity aversion, in the sense that they prefer risks with known probability measures over risks with unknown ones.

A Tough First Quarter for Systematic Managers?

According to the returns for Axioma’s factors, the first quarter of 2019 was probably a tough one for many systematic, factor-based investors, especially those investing in the US.

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?


In the News

Deutsche Börse creates leading index and portfolio/risk analytics business

Deutsche Börse to acquire Axioma for US$850 million and combine it with its index businesses (STOXX and DAX) valued at €2.6 billion into a new company.

Not All Stock Factors Are Created Equal — Even When They Have the Same Name (Sign-In Required)

Building a portfolio based on “factors,” in industry jargon, can be tricky, since any variation in the process can lead to vastly different basket of stocks and performance patterns.

The lack of risk aversion in the market is troubling: Axioma

Olivier d’Assier of Axioma says the way markets seem to be shrug off bad news is “a bit too fast” for his liking.

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