Short-term risk in Axioma’s global multi-asset class model portfolio jumped 0.66% to 4.50% as of Friday, May 10, 2019, driven by a surge in equity volatility, following one of the worst weeks for the US stock market since the beginning of the year. However, the accompanying flight-to-quality flows also led to a more inverse relationship between share prices on one side and bond valuations and foreign exchange rates against the US dollar on the other, which increased the diversification benefits from fixed-income and non-USD assets. Non-US sovereign bonds, which saw the strongest decline in their risk contribution, are now the biggest diversifiers in the portfolio—alongside their American counterparts and the Japanese yen—detracting 0.13% (or 2.8% of overall volatility) from total risk. In turn, this meant that equities are now responsible for almost the entire volatility of the portfolio.
Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated May 10, 2019) for further details.