Equity Risk Monitors — August 16, 2021

Equity Risk Monitor Highlights | Week Ended August 12, 2021

  • High beta stocks back in favor
  • Asset return dispersion high in the US
  • Japan among the riskiest countries despite risk plunge

High beta stocks back in favor

After faltering in recent months, high-beta stocks were back in favor last week. The Market Sensitivity style factor recorded negative one-, three- and six-month returns, but positive returns last week in most geographies. In addition, the 12-month return for Market Sensitivity was the highest among all style factors in the Worldwide medium-horizon fundamental model, in contrast to its typically negative return over a 12-month horizon.

Worldwide Market Sensitivity’s cumulative year-to-date return in the Worldwide (WW4) model exceeded 8% last Thursday, indicating investors’ preference for stocks that tend to exhibit larger moves than the market. The uptick in performance was widespread regionally, too, with Market Sensitivity’s 12-month return among the most positive of the market-based style factors in most of the regions Axioma tracks closely.

See graph from the Global Developed Markets Equity Risk Monitor as of 12 August 2021:

Asset return dispersion high in the US

Dispersion—the cross-sectional standard deviation of weekly returns across all index stocks—has been much higher in the STOXX USA 900 index over the past couple of weeks, compared with weekly levels in the prior two months. Increased dispersion provides more opportunities for active managers to add value. Most other regions recorded declines in dispersion last week, after seeing increases in July.

As the US market rose to new records last week—boosted by encouraging earning reports, employment reports and infrastructure prospects—more than half of the stocks in the STOXX USA 900 outperformed the index over the five days ended August 12, as well as the two prior five-day periods. This stands in sharp contrast to the relatively high percentage that lagged the index on a rolling five-day basis in June and July.

See graphs from the United States Equity Risk Monitor as of 12 August 2021:

Please note that we changed the following chart in each Risk Monitor to reflect the proportion of stocks ahead/behind the index, instead of showing the percent of winners/losers.

Japan among riskiest countries despite risk plunge

While Japan saw a large drop in risk last week, it remained among the riskiest geographies. Japan’s risk plunged close to one hundred basis points over the past five business days, pushing its volatility below 14%, as measured by Axioma’s Japan short-horizon fundamental model. Despite the drop, Japan kept its position as the second-riskiest region after China as of last Thursday. The STOXX Japan 600 rose close to 1.6% last week, though the gain remained within one standard deviation of the expectation at the beginning of the week.

See graph from the Japan Equity Risk Monitor as of 12 August 2021:

For more insights and research from the Applied Research team, please click here.