Axioma Risk Monitor
AXIOMA RISK MONITOR
Equity edition

Risk spreads widen as Japan awaits a new emperor; Investors optimistic in Australia; US Health Care tanks on prospect of tighter legislation

 

HIGHLIGHTS FOR THE WEEK ENDED APRIL 25

 
 
 

Risk spreads widen as Japan awaits a new emperor

 

While risk dropped abruptly in Japan this year, risk spreads have widened as Japan awaits a new emperor on May 1, along with the Bank of Japan’s commitment last week to extremely low interest rates until 2020, and ahead of a possible US-Japan trade deal. The short-horizon fundamental forecast shed over nine percentage points, while the medium-horizon counterpart fell more than 3 percentage points since the end of December. However, Japan remained the second-riskiest region after China, among those Axioma tracks closely. The statistical forecasts at the short and medium horizons dropped less than their fundamental counterparts. The risk spreads between the statistical and fundamental variants were positive throughout 2019. The gap was less pronounced at the medium horizon. Positive risk spreads indicate extra risk picked up by the statistical models that may reflect potential changes in the risk regime and/or the emergence of non-traditional factor risk sources.

See graph from the Japan Equity Risk Monitor as of 25 April 2019:



 

Investors optimistic in Australia

 

High Volatility investors saw large gains in Australia, as the Australian market surged to more than a decade high last week. The Volatility factor in Axioma’s fundamental medium-horizon Australia model recorded strong positive returns at the one-, three-, and six-month horizons. The style factor posted six-month cumulative returns of 7%. Volatility was the best performer among all style factors in the Australia model over this period. Japan, China and Emerging Markets also saw positive six-month cumulative returns, but of a much lower magnitude (below 2%). Low Volatility strategies outperformed in all other regions Axioma tracks closely, with Canada posting the biggest negative six-month return of negative 9%.

See graph from the Australia Equity Risk Monitor as of 25 April 2019:

 

 

US Health Care tanks on prospect of tighter legislation

 

The US Health Care sector, which was the top performer last year, fell abruptly as the prospect of tighter health care legislation pushed down health care stocks. The sector is the worst performer so far in 2019. Health Care recorded the lowest cumulative year-to-date return (of 3.4%) last week among the 11 sectors in the Russell 1000. Health Care posted a year-to-date cumulative active return of -14% against the Russell 1000. In terms of risk, Health Care was the third-least volatile, after Consumer Staples and Real Estate, among the 11 sectors in the Russell 1000. Health Care’s weight in the index dropped below its level of six months ago, and now Health Care’s contribution to benchmark risk is slightly higher that its weight would imply.

See graph from the US Equity Risk Monitor as of 25 April 2019:


 

 

 
 
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Events

Webinar | Axioma Insight™ Quarterly Multi-Asset Risk Review

Date: May 16, 2019
Time: 11:00 AM ET / 4:00 PM GMT

In this webinar, Christoph V. Schon, Axioma's Executive Director of Applied Research, examines how different scenarios affect the overall risk and diversification opportunities of a global multi-asset portfolio.

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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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.

 
 
 
 

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