Axioma Risk Monitor
Equity edition

UK risk continues to fall post-election; Style risk elevated for the Russell 2000; Euro suffers as central banks signal rate cuts




UK risk continues to fall post-election


Market risk in the UK continued to slide after Boris Johnson, a supporter of Brexit, won the Conservative Party election and became the UK Prime Minister. The risk of the UK stock market, as represented by the FTSE 350 index, has fallen rapidly in 2019, despite the incessant trepidation on the UK political scene. Short-horizon risk shed 450 basis points in the last six-months, and more than 40 basis points in the past five days alone, as measured by Axioma’s UK short-horizon fundamental model. The decline in risk was driven by a drop in factor volatility, while factor correlations remained relatively stable, with little influence on the change in risk.

See graph from the UK Equity Risk Monitor as of 25 July 2019:


Style risk elevated for the Russell 2000


Style risk jumped after the Russell 2000’s reconstitution at the end of June, and remained elevated ever since, even though total benchmark risk has drifted down. Style risk fell in the first half of the year, dipping to a near-term low below 0.8% in mid-June. The index reconstitution pushed the style risk above 1% in the beginning of July and, after declining slightly in the first couple of weeks of the month, rose again close to 1% last week, as reflected by Axioma’s medium-term fundamental US Small Cap model.

The factors that have seen the biggest jumps in risk include Earnings Yield, Exchange Rate Sensitivity and Medium-Term Momentum. In addition, Profitability has become more correlated with several factors, also driving style risk higher. Market risk has been the main driver of the decline in the total risk of the Russell 2000 over the past six months, while industry risk and stock-specific risk (which are only a small part of total benchmark risk) have been relatively flat.

See graph from the US Small Cap Equity Risk Monitor as of 25 July 2019:



Euro suffers as central banks signal rate cuts


The euro gained some ground against the US dollar after the European Central Bank (ECB) kept interest rates unchanged on Thursday. However, that did not make up for the abrupt weakening of the common currency in recent months. Signals of imminent interest rate cuts from the Federal Reserve and the ECB put pressure on the euro. The common currency has also been pressed by the recent disappointing German figures. For details on the impact of German economic data on euro sovereigns, see the blog post Weak economy, strong markets? – The German recession anomaly.

As of last week, the euro was positioned at the low end of its six-month return range against the US dollar, recording a loss of more than 4% over this period. The euro was also pushed away from the low end of its six-month volatility range against the greenback, and is now at a level of 5% volatility. However, the euro remained among the least risky developed currencies, with only the Singaporean dollar and Canadian dollar being less volatile among major developed currencies.

See graph from the Equity Risk Monitors as of 25 July 2019:



Stay Connected


Webinar Replay | Axioma Insight™ Q2 2019 Risk Review

In this webinar Melissa Brown, Managing Director of Applied Research, provided illuminating insights into key drivers of risk and the resulting implications for portfolio managers, risk managers, investment strategists and all those wrestling with the uncertainties facing today’s markets.

Watch the recording here.

Webinar | Axioma Insight™ Q2 2019 Risk Review APAC

Date: August 8, 2019
Time: 10:00 AM HKT / 11:00 AM JST

In this webinar, Olivier d’Assier will identify the key drivers of market risk in the previous quarter, draw some conclusions as to the nature of risk currently, and make present insight as to which sources of risk will be most influential in the current quarter.

Register here.


On the Blog

Will a Fed rate cut support markets? At first, yes, but…

Markets consider a Fed rate cut on July 31 a foregone conclusion, though how share prices will react may depend on the size and the underlying reason.

Weak economy, strong markets? – The German recession anomaly

Despite a steady stream of bad economic news, European stock markets just posted their best half-year performance in almost 10 years.

Finding the Missing Link

In this blog post, we present two use cases to explain how Linked Models can enhance your investment process.

Concerned about auto tariffs? Look to Asia for diversification…

Building on our earlier blog on the impact of US tariffs on EU car imports, we decided to take a look at the effects on automobile manufacturers in other regions.

Latest Research

Q2 2019 Insights: A Strong Market ... but on Thinning Ice?

While equity markets were strong overall in Q2—and risk levels did not stand out—some trends were troubling and investors should be cognizant of them. 

What Is a Factor? Part 2: The Impact of the Long-Only Constraint

In this paper we extend our analysis of how the construction of a factor portfolio, even using the same underlying factor definition, can have substantial impact on the returns the factor generates.

In the News

Axioma Introduces New Linked Models in Risk Model Machine

Linked Models offer investment professionals a clear view of risk across regions or sectors, creating consistency in the risk/return profile as viewed from the front and middle offices.

Possible Rate Cuts Mean Fixed Income Investors Must Get More Strategic

The Federal Reserve has been putting its more dovish side on display, which pivots from 2018’s rate-hiking bonanza with possible rate cuts to come in 2019.

Axioma Risk Monitor

A 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.


Note: The recent decision by FTSE to add China A Stock Connect stocks to its indices had little effect on their risk, since the A shares were added initially with a small (25%) weight. However, the addition of so many names has had an impact on the average daily trading volume which accounts for the new names at full weight. That is the source of the huge jump in chart 25 in some of the risk monitors.

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