Standalone equity volatility in Qontigo’s global multi-asset class model portfolio has dropped by a third since the beginning of February—yet the current predicted risk for the total portfolio of 6.6% is only marginally lower than the 7.2% of 11 weeks ago. The main reasons for this are that share and bond prices are no longer negatively correlated, while the recent dollar weakening has once more amplified the returns of non-US stocks.
Much has been written about the spectacular comeback of Value stocks. But has this also been reflected in the credit market? The steep rise of the Value factor from the Axioma Factor-based Fixed Income Risk Model over the past 14 months seems to suggest that the answer is yes.
Foreign-exchange rates can be very volatile. Investors looking to bet on markets outside their own base currency must decide whether to embrace or mitigate the additional risk. In this paper, we propose a stress-testing framework that can help investors with the decision whether “to hedge or not to hedge”, given their assumptions on expected returns and cross-asset correlations.
Rising interest rates are customarily accompanied by gains in stock prices and increasing consumer prices, which are usually seen as signs of a healthy, growing economy. There may come a point, however, when (expected) inflation becomes so high that the central bank may feel compelled to tighten monetary conditions.
Recent market movements bring back memories of a similar series of events almost exactly three years ago: a sudden drop in share prices, a sharp rise in Treasury yields and a strengthening dollar—all of it blamed on inflation.
Investors are getting jittery over inflation, thanks to continued fiscal stimulus, combined with the effects of prolonged monetary easing. This, in turn, has pushed long-term government rates to 12-month highs, while share prices continue to climb.
In this paper, we take a closer look at the pairwise interactions of some of the asset-class pairs and review how they affected the risk of a global multi-asset class portfolio over the past 14 months, with a particular focus on the most recent environment.
In a surprising turn of events, most equity markets finished 2020 with sizable gains—and the fourth quarter unquestionably did its part. Benchmark risk continued to slide in Q4—except for a blip in November—but still ended the year higher than where it started. Factor returns went wild in Q4 and many regions saw outsized returns for the year.
In the wake of failed last-minute talks between Britain and the European Union, both sides have now warned that a ‘no-deal’ Brexit is likely, despite a mutual commitment to continue negotiations. The pound is expected to take the brunt of any market reaction, but the impact on stock markets is less clear-cut. In this blog […]
Sector-allocation decisions form an integral part of many investment processes, both in equity and fixed income portfolio management. Most benchmark providers in both asset classes provide a wide range of sector sub-indices, and many risk models contain sector factors. By comparing Axioma’s new Factor-based Fixed Income Risk Model with a more traditional approach, we demonstrate that while sectors do play a role in credit investment management, they do so to a much lesser extent than one might expect.
The recent news of effective COVID-19 vaccines propelled global stock indices to record highs. With that news came a big “sector rotation”, from industries that had so far benefitted from the crisis (Health Care, Information Technology) back into those that had suffered most (Energy, Financials). We used Axioma’s new Factor-based Fixed Income Risk Model (FFIRM) […]