MAC Monitor — November 17, 2020

Multi-Asset Class Risk Monitor Highlights | Week Ended November 13, 2020

Investors ditch safe-haven assets on vaccine news; As risk appetites return, yen and franc drop; Increased diversification lowers portfolio risk

Investors ditch safe-haven assets on vaccine news

Prices of safe-haven assets dropped around the globe in the week ending November 13, 2020, as investors flocked to riskier securities. High-quality sovereign yields—which move inversely to bond prices—recorded on Monday their biggest daily surge since the liquidity crisis in mid-March, after two leading drug makers announced they had developed COVID-19 vaccines with efficacy rates of more than 90%. A large part of the yield increase was reversed later in the week, amid a renewed global surge in virus infections and the reintroduction of stricter lockdown measures in some US states. Meanwhile, a number of European peripheral issuers, including Italy and Greece, saw their risk premia decrease and prices go up, fuelled by the returning risk appetites.

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Please refer to Figure 4 of the current Multi-Asset Class Risk Monitor (dated November 13, 2020) for further details.

As risk appetites return, yen and franc drop

The Japanese yen and the Swiss franc depreciated against the US dollar in the week ending November 13, 2020, as traders shifted capital into riskier currencies, such as the New Zealand dollar and the Norwegian krone. The latter posted the strongest performance among all major currencies on Monday, as it received an additional boost from rising oil prices. The British pound, on the other hand, ended the week only marginally higher, as a surge in unemployment and weaker-than-expected GDP growth data, released on Wednesday and Thursday, respectively, almost erased the gains in the first two days of the week.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated November 13, 2020) for further details.

Increased diversification lowers portfolio risk

Short-term risk in Qontigo’s global multi-asset class model portfolio dropped 1.2 percentage points to 15.1% as of Friday, November 13, 2020, as the opposite movements of major asset classes increased diversification benefits. The “risk-on” flows from classical safe havens—such as government bonds, gold and the Japanese yen—to equities, oil and fixed-income securities of lower credit quality, meant that losses in the former were counterbalanced by gains in the latter. That said, the large fluctuations in share prices still dominate overall portfolio risk, with global equities accounting for more than 80% of total volatility. US Treasuries and JPY cash, meanwhile, provided the greatest diversification benefits, while the percentage risk contribution from gold almost halved from 2.2% to 1.2%.

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Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated November 13, 2020) for further details.