- US small caps harder hit than large caps in 2022
- Value and Earnings Yield extend gains as Growth plunges in Q1
- US dollar strengthens against major developed currencies
US small caps harder hit than large caps in 2022
US small capitalization stocks have underperformed their larger counterparts, while both saw a jump in risk in 2022. Despite the recent US market rebound, the Russell 2000® and STOXX® USA 900 Indices have still posted year-to-date losses, of 8% and 6% respectively, as of last week. The STOXX® USA 900 Index’s 12-month return remained strongly positive at about 12%, but that of the Russell 2000 neared -6% last Thursday.
Interestingly, large caps’ risk climbed more steeply than that of small caps, but small caps remained riskier than large caps throughout the year (as small caps started the year 25% riskier than large caps). Risk forecasts rose 700 basis points for the STOXX® USA 900 and 500 basis points for the Russell 2000® since the beginning of the year, as measured by Axioma’s US4 and US Small Cap short-horizon fundamental models, respectively. The Russell 2000® is now the riskiest among the indices closely tracked by Qontigo’s Equity Risk Monitors, followed by the STOXX® USA 900 and STOXX® Japan 600 Indices.
See graph from the US Small Cap Equity Risk Monitor as of 31 March 2022:
Value and Earnings Yield continued the upward trend started last year, recording positive three-month returns in most of the 12 regions covered by Qontigo’s Equity Risk Monitors. Value saw outsized quarterly returns—two standard deviations above the expectations at the beginning of the year—in Canada, the UK, Australia and Developed Markets ex-US while Earnings Yield saw outsized three-month returns in Japan, Emerging Markets and Developed Markets ex-US, as measured by Axioma’s local medium-horizon fundamental models.
In contrast, Growth’s quarterly return was negative across the board, except in China where it eked out a small positive return. The UK saw the largest negative three-year return for Growth across all regions, more than two standard deviations below the expectations at the beginning of the quarter. Value and Earnings Yield are now the first and second best-performing fundamental factors in the Worldwide model, with 12-month returns of 4% and 2%, respectively, while Growth was the worst performer with a 12-month return of -1%.
See graph from the Global Developed Markets Equity Risk Monitor as of 31 March 2022:
US dollar strengthens against major developed currencies
The US dollar has strengthened against major developed market currencies since the Russia-Ukraine war started, as the greenback maintained its safe haven status. Expected higher interest rates also benefitted the US currency. Most developed currencies were positioned at or near the low ends of their one-year return ranges against the greenback, with most seeing one-year losses. The Japanese yen was the biggest loser with a one-year loss nearing 10%.
Risk has climbed for all developed market currencies since the Russia-Ukraine armed conflict started, pushing most of them to the ends of their one-year volatility ranges against the greenback. The Swedish krona, Danish krone, and the euro saw the largest jumps in risk since the war started, but the Norwegian krone remained the riskiest developed currency—a status it has maintained over the past two years. The Singaporean dollar remained the least risky developed currency.
See graph from the Equity Risk Monitors as of 31 March 2022:
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