US stocks extended their gains last week, with small-cap shares rising faster than their large-cap counterparts. The Russell 2000 reported a 4% gain for the week, while the Russell 1000 advanced only 1%. Even with its recent rally, however, the Russell 2000 trails more than 3 percentage points behind Russell 1000’s cumulative year-to-date return of 20%. While both US indices saw sharp increases in medium-horizon risk through August and September, the risk of the Russell 2000 rose faster relative to that of the Russell 1000. Russell 2000’s risk of 18% is now almost 3 percentage points higher than that of Russell 1000, as measured by Axioma’s US Small Cap and All Cap medium-horizon fundamental models.
Style risk jumped after the Russell 2000’s reconstitution at the end of June, and remained elevated through August, only to climb again in September and reach a six-month high last week. The factors that have seen the biggest jumps in risk this month include Growth, Medium-Term Momentum, and Size, which are all positioned at the high ends of their six-month volatility ranges. Market risk has been the main driver of the rise in the total risk of the Russell 2000 over the past month, as style risk boosted it. Industry risk declined slightly, while stock-specific risk (which is only a small part of total benchmark risk) was relatively flat.
See graph from the US Small Cap Equity Risk Monitor as of 12 September 2019: