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Axioma US Equity Factor Risk Models (US5.1)

Next generation of models derived from cutting-edge factor research

The award-wining Axioma US Equity Factor Risk Models (US5.1) incorporate the latest academic research on the effectiveness of factors. With the introduction of a select number of new factors, users benefit from more comprehensive thematic coverage without sacrificing the ease-of-use of a parsimonious risk model. Key enhancements include:

  • Expanded coverage: Includes US securities trading outside the US
  • Redefined factors: Reflects increased thematic purity, strength and stability
  • New factors: More complete risk assessment
  • Industry classification: Aligned with GICS 2023 Industry factors

The Axioma US Equity 5.1 Factor Risk Model suite includes fundamental and statistical variants with short, medium and ultra-short trading horizons.

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What do the new factors tell you?1

Opinion Divergence

Measures lack of consensus among investor opinion. High exposure expects positive returns.

Non-linear Residual Structure

Finds higher-order explanatory factors in the residual returns.

Hedge Fund Crowding

Captures risk and return differences of stocks based on how widely they are held by hedge funds. High Crowding expects positive returns.

Short Interest

Explains risk and return of stocks based on the degree to which a stock is being shorted. High Short Interest expects negative returns.

Investment

Measures the combination of asset growth, sales growth and inventory growth. High exposure expects negative returns.

Downside Risk

Accounts for negative or uncompensated
risk and includes as components downside volatility, maximum return and implied volatility spread.

1 Not all factors are available across horizons  

How can you use the enhanced US5.1 models?

  • Neutralize exposure to ‘hidden’ risks using the Non-linear Residual Structure factor.
  • Create a portfolio to follow the ‘smart money’ through exposure to hedge-fund relevant factors.
  • Produce lower-risk Momentum portfolios with less upside sacrifice.
  • Generate theoretically cleaner ‘Quality’ exposure through positive Profit Quality and negative Investment.
  • Enhance the upside of minimum variance and low-volatility portfolios by reducing Downside Risk.
  • Add positive Sentiment to Value portfolios to mitigate ‘value traps.’

What additional insights and benefits can you gain from US5.1?

Annualized Returns

The new factors are important sources of asset volatility for predicting risk.

Annualized Returns for the Medium-Horizon Model*

Source: Axioma, US Equity Factor Risk Model (US5.1)
*Information ratios are above or below the bars. January 1982–December 2022.

** Short-horizon model only

Redefined Leverage Factor

US5.1 Leverage exhibits greater stability when an asset has negative equity.

Leverage Exposure: Home Depot

Source: Axioma, US Equity Factor Risk Model (US4) vs US Equity Factor Risk Model (US5.1).