Equity Monitor Insights

This week we noticed that small capitalization stocks in the US have had a strong comeback in the past month. Size style factor returns were negative last Thursday at three horizons: one month, three months and six months (a negative return means that smaller stocks—those with negative exposure to the Size factor—fared better). The largest negative return, -1.92%, was observed over the past month, meaning that US small-cap stocks greatly outperformed large caps during this period. Return to the Size factor was positive over the past five days. Size remained the most volatile style factor in Axioma’s US4 fundamental model, with a volatility of slightly below 5%.

Spain’s volatility rose more than one percentage point, and correlations increased by more than two points over last week, following Catalonia’s move towards declaring secession from Spain. Spain’s market risk of about 12%, as measured by Axioma’s Worldwide short-horizon fundamental model, made it the second riskiest developed country after Ireland last Thursday. Spain’s contribution to benchmark risk exceeded its weight in FTSE Developed. The impact was even more noticeable within Europe. Whereas a week ago, Spain’s risk and weight were equal in FTSE Developed Europe, by the end of this week its risk contribution exceeded its weight.

Most developed currencies weakened against the US dollar, as expectations for another increase in US short-term interest rates rose. In particular, the Japanese yen’s six-month return against the US dollar was negative last week, the only currency in this position among major developed currencies. The currency viewed by many as a safe haven edged toward the low-end of its six-month return range against the greenback. At the same time, the yen’s volatility—one of the highest among developed market currencies—increased slightly, pushing it away from the low-end of its six-month volatility range relative to the US dollar.

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Melissa R. Brown, CFA

As Managing Director of Applied Research, Melissa Brown generates unique insights into risk trends by consolidating and analyzing the vast amount of data on market and portfolio risk maintained by Axioma. Brown’s perspectives help both clients and prospects to better understand and adapt to the constantly changing risk environment.