Axioma Risk Monitor
AXIOMA RISK MONITOR
Equity edition

Profitability tanks as Momentum soars in the US; Developed Market risk remains relatively flat; Little differentiation in EU country risk

 

HIGHLIGHTS FOR THE WEEK ENDED MAY 30

 
 
 

Profitability tanks as Momentum soars in the US

 

Profitability—one of the worst-performing style factors in Axioma’s US All-Cap and US Small Cap medium-horizon fundamental models—posted negative returns at the one-week, one-, three- and six-month horizons in both models. The style factor’s cumulative six-month return dipped to -2.16% and -3.42%, in the US All-Cap and Small Cap models, respectively. Profitability’s return in the Small Cap model, was even lower than that of Volatility, which dominated most other markets. However, Profitability fared well in the other geographies Axioma tracks closely, particularly in Emerging Markets, where the factor’s six-month return reached +3%—the highest positive return among the style factors in Axioma’s Emerging Market medium-horizon fundamental model.

In contrast, after a miserable seven months, Medium-Term Momentum has seen a strong recovery over the past month, gaining more than 3% in both US All-cap and Small Cap, surely a relief to momentum-based investors.

See graph from the US Small Cap Equity Risk Monitor as of 30 May 2019:



 

Developed Market risk remains relatively flat

 

Developed market risk remained relatively flat at the medium horizon, despite worldwide markets being rattled by the US-China and US-Mexico trade disputes. Stocks in FTSE Developed climbed 16% in the first four months of 2019, followed by a 5% decline in the month of May. However, after a steep drop of more than 200 basis points in April, the risk of FTSE Developed rose only about 20 basis points in May, as measured by Axioma’s Worldwide medium-horizon fundamental model. The decrease in market risk was the major driver of the decline in total risk since April, as the decline in stock prices was more of a steady slide than a sudden drop. A closer look at the major components of risk revealed that a decline in country, currency and style risk boosted the overall decline. FTSE Developed Markets’ medium-horizon risk was 12.3% last Thursday.

See graphs from the Developed Markets Equity Risk Monitor as of 30 May 2019:

 

 

Little differentiation in EU country risk

 

For investors in Developed Europe, country risk is not a major source of differentiation. While stocks in Developed Europe fell this month—in line with the rest of the world—FTSE Developed Europe’s risk rose only slightly. This despite an abundance of unsettling events in Europe, including the European parliamentary elections, UK Brexit-related turmoil, rising unemployment in Germany and the conflict between the Italian government and the European Union over Italy’s debt management—to name a few. The short-horizon fundamental risk of FTSE Developed Europe remained flat last week and rose about 120 basis points over the past month, while its medium-horizon counterpart remained flat, as reported by Axioma’s Developed Europe fundamental model short- and medium-horizon variants. FTSE Developed Europe’s risk continues to be driven by the UK, whose contribution to the portfolio risk is now lower than its weight in the FTSE Developed Europe index.

Country risk for most developed European countries hovered around 5%, with most European countries being positioned at the low ends of their six-month volatility ranges. Note that this measure of risk is over-and-above that of the European market and other factors comprising the Developed Europe model, what we often call “extra-market” risk.

See graph from the Developed Europe Equity Risk Monitor as of 30 May 2019:


 

 

 
 
Stay Connected
 
 

Events

Webinar Recording | Axioma Insight™ Quarterly Multi-Asset Risk Review

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

Watch the recording here.


 

On the Blog

Commonly Used Portfolio Constraints Have Exacerbated Weak Results from Poor Factor Performance in 2019

After a tough end to 2018 for factor-based managers, hopes were high for a turnaround this year. Unfortunately, the turn has failed to materialize.

Axioma’s ROOF Scores Explained

Axioma’s ROOF Scores were created to quantify market sentiment—in other words, bullish or bearish?

Putting a dent in auto imports: Stress-testing the impact of US tariffs on EU cars

Much attention has recently been paid to the trade conflict between China and the US. Yet, there is also the impending threat of special tariffs of up to 20% on car imports to the US from the European Union.


Latest Research

The Stock-Bond Correlation: Where to from here?

In this paper, we review the historical relation between share and bond prices and relate it to recent developments. We examine the impact on portfolio risk, explore alternatives for diversification options and provide an outlook on a potential future relationship.

Introducing Axioma’s ROOF™ Score Methodology

This paper provides an attempt to design a measure that quantifies the current balance between risk-tolerant and risk-averse investors in the equity markets.

In the News

German auto sector could drop as much as 12% if Trump announces tariffs, analyst says

The German stock market could fall as much as 6% and its automobile and components sector, could see losses of up to 12%, according to Christoph Schon.

Sentiment a Good Predictor of Market Levels (Radio)

Olivier d’Assier joined Daybreak Asia to discuss his assessment of investor sentiment and risk appetite, saying the trade war is a big binary event for markets.

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