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Equity Risk Monitors — May 17, 2021

Equity Risk Monitor Highlights | Week Ended May 13, 2021

  • Info Tech tanks
  • Value stages a comeback
  • Volatility and Growth now among the riskiest style factors

Info Tech tanks

Tech stocks led the US market decline last week, although all US sectors contributed to it. Information technology stocks have been losing ground since late April and Info Tech is the only sector in the STOXX USA 900 index to report a year-to-date loss. The loss was small (around 1%), but it stood in stark contrast to the tremendous gains Info Tech saw in 2020, when it reported the second-best annual return (of 47%) after Consumer Discretionary. Info Tech’s risk soared in May, becoming the second riskiest sector after Energy. Still, Info Tech’s risk of 23% was 13 basis points lower than that of Energy last Thursday, as forecasted by Axioma US short-horizon fundamental model.

While Info Tech remains the dominant sector in the US benchmark, its index weight is now lower than it was 12 months ago. In contrast, Info Tech’s contribution to the STOXX USA 900 index risk is well above its level of 12 months ago. Additionally, Info Tech’s contribution to index risk greatly surpassed its current weight in the index, whereas the two were equal a year ago.

See graph from the US Equity Risk Monitor as of 13 May 2021:

Value stages a comeback

After languishing for the last couple of months, Value investing saw a resurgence in May. And while the Value style factor’s last week return was within one standard deviation of the expectations five business days ago in all Axioma models, the three-month returns were three standard deviations above the mid-February expectations in most models. Value’s three month returns in Axioma’s Worldwide and Emerging Markets medium-horizon fundamental models were close to four standard deviations, based on the risk expectations at the beginning of the period. Over the past 12 months, Value has surprisingly become the best performing fundamental style factor in all regions Axioma tracks closely, nearing 13% in Canada and Emerging Markets.

See graph from the Global Developed Markets Equity Risk Monitor as of 13 May 2021:

Volatility and Growth now among the riskiest style factors

Almost all style factors were positioned at or close to the low-ends of their one-year volatility ranges in most of Axioma’s medium-horizon fundamental models last Thursday. The main exceptions were Growth and Volatility, which were situated near or at the high-ends of their volatility ranges. This occurred as both high-growth and high-volatility stocks fell out of favor recently. In the Worldwide model, Growth had a positive return since March, only to plunge in May, while Volatility has seen a steep decline since February.

Aggregate style factor risk rose slightly for the STOXX Global 1800 index, while the total risk continued to decline in May—with the exception of last week when the plunge in equity markets drove an uptick in total risk.

See graph from the Global Developed Markets Equity Risk Monitor as of 13 May 2021:

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