by Qontigo
Stocks rose in March, rebounding from losses in the month’s first half, as investors raised expectations the Federal Reserve may soon pause its interest rate hikes following the collapse of three lenders in the US.
The STOXX® Global 1800 index added 3% last month when measured in dollars and including dividends1. The benchmark slid 17.9% in 2022, its worst year since 2008, as central banks pressed ahead with higher rates to fight runaway inflation. The index added 0.6% in euros last month after the greenback fell 2.4% against the common currency.
The Eurozone’s EURO STOXX 50® gained 2% in euros in the month, while the pan-European STOXX® Europe 600 slid 0.2%, paced by bank stocks.2 The STOXX® North America 600 climbed 3.3% in dollars, while the STOXX® USA 500 rose 3.6%. The STOXX® Asia/Pacific 600 gained 2.6% in dollars.
Figure 1 – Benchmark indices’ March risk and return characteristics
Germany’s DAX® rose 1.7% in the month. MDAX®, which gauges the performance of German mid-caps, dropped 3.4%.
| For a complete review of all indices’ performance last month, visit our March index newsletter. |
Ninth straight interest rate increase
The collapse of three US lenders including Silicon Valley Bank, and the forced takeover of Credit Suisse by rival UBS, sent shockwaves across markets in March and prompted investors to sell banks’ equities and bonds. The Fed on March 22 increased its key borrowing rate by 25 basis points to the highest since 2007, but removed from a statement previous references to the need for “ongoing” rate rises.3
Figure 2 – Annual % returns for STOXX Global 1800 index
Figure 3 – Returns since Jan. 1, 2020
Volatility is little changed
The EURO STOXX 50® Volatility (VSTOXX®), which tracks EURO STOXX 50 options prices, fell to 19.4 at the end of last month from 19.5 in February. A higher VSTOXX reading suggests investors are paying up for puts that offer insurance against stock price drops. The VDAX-New®, which measures volatility in German equities, slipped to 18.9 from 19.1 in February.
Technology Supersector leads gains
The STOXX® Global 1800 Technology index came out on top among 20 Supersectors in the STOXX Global 1800 in March, with a 12% advance. At the other end of the table, the STOXX® Global 1800 Banks index slumped 12%.
Nineteen of 25 developed markets tracked by STOXX advanced in March when measured in dollars. The STOXX® Developed Markets 2400 index rose 2.6% in dollars and climbed 0.2% in euros.
Fourteen of 20 national developing markets tracked by STOXX climbed in the month on a dollar basis. The STOXX® Emerging Markets 1500 index rose 2.4% in the US currency and was flat in euros.
Factor investing
On a global basis, Low Risk was the leading style factor in March, according to the STOXX Factor indices. Within US markets, it was the Quality factor that came up first in the month.
Figure 4 – STOXX Factor (Global) indices’ March risk and return characteristics
Climate benchmarks
Among climate benchmarks, the STOXX® Global 1800 Paris-Aligned Benchmark (PAB) and the STOXX® Global 1800 Climate Transition Benchmark (CTB) both rose more than 5% in March. The PAB and CTB indices follow the requirements outlined by the European Commission’s climate benchmarks regulation.
The STOXX® Willis Towers Watson World Climate Transition Index added 3.8% in the month. The STOXX Willis Towers Watson Climate Transition Indices (CTIs) employ a unique Climate Transition Value at Risk (CTVaR) methodology that quantifies the anticipated impact of an economic transition on equity valuations. The CTIs look beyond carbon emissions and make a forward-looking, bottom-up evaluation of asset repricing risks in a decarbonization pathway.
Among the STOXX Low Carbon indices, the EURO STOXX 50® Low Carbon (+1.9%)4 underperformed the EURO STOXX 50 by 7 basis points in March. Elsewhere, the STOXX® Global Climate Change Leaders (+6.1%), which selects corporate leaders that are publicly committed to reducing their carbon footprint, beat the STOXX Global 1800 index by 3.1 percentage points last month.
Sustainability indices
The STOXX® Global 1800 ESG-X index gained 3% in the month. The STOXX® ESG-X indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions.
Within indices that combine exclusions and ESG best-in-class integration, the EURO STOXX 50® ESG index gained 0.9% in March. Germany’s DAX® 50 ESG index (+1%), which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, underperformed the benchmark DAX.
Among other STOXX sustainability families, the STOXX® Global 1800 ESG Broad Market index rose 3.5% in the month. The STOXX ESG Broad Market indices apply a set of compliance, product involvement and ESG performance exclusionary screens on a starting benchmark universe until only the 80% top ESG-rated constituents remain.
The STOXX® Global 1800 ESG Target climbed 2.9%, the EURO STOXX® ESG Target rose 0.4% and the DAX® ESG Target added 1.3%. The STOXX and DAX ESG Target indices seek to significantly improve the benchmark portfolio’s ESG profile while mirroring its returns as closely as possible. Through a series of constraints, the indices implement an optimization process to maximize the overall ESG score of the portfolio while limiting the tracking error to the benchmark.
The STOXX® Global 1800 SRI advanced 3%. The STOXX SRI indices apply a rigorous set of carbon emission intensity, compliance and involvement screens, and track the best ESG performers in each industry group within a selection of STOXX benchmarks.
Finally, the DAX® ESG Screened added 1.8% in the month. The index reflects the composition of the DAX benchmark minus companies that fail to pass norms-based and controversial weapons screenings, meet minimum ESG ratings or are involved in certain business activities considered undesirable from a responsible investing perspective.
Thematic indices
Among 25 STOXX® Thematic indices, 18 outperformed the benchmark STOXX Global 1800 last month. Gains were led by the STOXX® Global Video Gaming & eSports index (+13%).
Dividend strategies
Dividend strategies struggled last month.
The STOXX® Global Maximum Dividend 40 (+1%) selects only the highest-dividend-yielding stocks. The STOXX® Global Select Dividend 100 (-2.8%) tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.
Minimum variance
Minimum variance strategies had good performances in Europe last month but more mixed outcomes on a global basis. The STOXX® Global 1800 Minimum Variance rose 2.9% and the STOXX® Global 1800 Minimum Variance Unconstrained climbed 3.6%.
The STOXX Minimum Variance Indices come in two versions. A constrained version has similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, on the other hand, has more freedom to fulfill its minimum variance mandate within the same universe of stocks.
1 All results are total returns before taxes unless specified.
2 Throughout the article, all European indices are quoted in euros, while global, North America, US, Japan and Asia/Pacific indices are in dollars.
3 FT, March 22, 2023.
4 Figures in parentheses show last month’s gross returns.
