We recently held a webinar and released the corresponding Quarterly Insight report. In both we detailed drivers of the sharp increase in risk during the first quarter and the implications for active portfolio management. We had several key takeaways:
- Indices around the globe saw risk rise to twice to six times their beginning-of-quarter levels.
- The increase in risk in the US was by far the biggest for a quarter since 1982.
- The risk gap between emerging and developed markets and between small- and large-cap stocks narrowed.
- Almost no factor blocks, countries, currencies or industries were spared the sharp and sudden jump in risk.
- Countries and sectors that used to be leaders in risk—such as China and Information Technology—turned into some of the least risky.
- Asset correlations reached or exceeded eight-year highs, contributing to the increase in overall risk.
- Most style factors in most regions produced returns far larger in magnitude than expected with some up to nine standard deviations away from the long-term average.
- In another shift from the norm, several style factors fared better among larger stocks (versus the usual higher performance in small cap), and in a long-only context (rather than on the short side).
- We also examined the changes in and levels of style factor volatility, as well as changes in correlations, to help managers dig deeper into the sources of their large changes in active risk.
You can find the report here, and the webinar recording here.