Analytics

Much has been written about the spectacular comeback of Value stocks. But has this also been reflected in the credit market? The steep rise of the Value factor from the Axioma Factor-based Fixed Income Risk Model over the past 14 months seems to suggest that the answer is yes.

US Treasury yields plummet, despite rising share prices and stronger inflation; Eurozone yields lifted by new supply; Portfolio risk increases, as stocks and bonds ascend in tandem.

The FAANGs (Facebook, Amazon, Apple, Netflix, and Google) were the market darlings of the COVID-19 Pandemic, attaining almost cult-like status with investors in 2020. Only Microsoft and Tesla came close to winning such adulation.

After experiencing a period of steadily rising returns from 1982 through 2006, investing in “cheap” stocks has been out of favor since 2007. Granted, a few good quarters for the Value factor have popped up every now and again, but so have strings of poor performance, yielding a return of roughly 0% over the 13-year period ended September 2020.

Upswing in Energy, Financials, Real Estate and Utilities strengthens Value and Dividend Yield; Correlations tank in both global and emerging markets; Chinese stocks buck the global trend, continuing to fall.

US investor sentiment recovery stalls midway into the Neutral zone. European investor sentiment makes an attempt at regaining the bullish zone. Global and Asia ex-Japan investor sentiment recovery suffers from lack of confidence.

In Q1, most markets continued to build on the gains achieved in 2020, while risk changes were mixed across regions.

Treasury yields hold steady, as Fed reassures markets; High-yield bonds outperform, as share prices rise; Decreased cross-asset diversification offsets lower equity risk.

Global country and style risk remain elevated; Asset diversification plunges in the US; Turkish lira’s risk surges.

US markets seem in Déjà vu mode with sentiment following a similar pattern of recovery. European investor sentiment leads other regions to the top of the neutral zone. Global and Asia ex-Japan investor sentiment recovery settles in the Neutral zone.

The first quarter of 2021 provides an excellent opportunity to see how investor sentiment—as measured by the Sector ROOF ratio—can be leveraged in a market under a rotation scenario.

Foreign-exchange rates can be very volatile. Investors looking to bet on markets outside their own base currency must decide whether to embrace or mitigate the additional risk. In this paper, we propose a stress-testing framework that can help investors with the decision whether “to hedge or not to hedge”, given their assumptions on expected returns and cross-asset correlations.