Equity Risk Monitor Insights

Week of July 20

This week we noticed that health-care stocks in the US remained among the biggest gainers and the sector’s risk stayed relatively low, despite the concerns surrounding the GOP health-care bill. Year-to-date cumulative returns of the Health Care sector reached 19% on Thursday, making it the second best performing sector in the Russell 1000, while Information Technology stayed in the lead. As with most sectors, the risk of the Health Care sector has trended downward for most of 2017, with a small blip around the time GOP revealed the health-care bill details on June 22. The sector’s risk was 10.7% on Thursday, as recorded by Axioma’s medium-horizon US4 Model. When compared with its peers in the Russell 1000, Health Care’s volatility was in the middle of the pack. Health Care was the third largest sector in the index and its contribution to benchmark risk was much lower than its weight last week. Additionally, both Health Care’s weight and contribution to risk were higher than their levels of six months ago.

We also noted that while most global markets kept rising, Canada ended last week as the worst performing equity market over the past six months among developed countries. Even when compared with emerging markets, Canada’s return was low. Worse single-country returns were only recorded by Oman, Russia and South Africa. However, Canada was among the least volatile countries, as measured by Axioma’s short-horizon Worldwide fundamental model. Its 8% risk was only higher than that of Hong Kong, New Zealand and Singapore (among developed countries) and Malaysia and Czech Republic (among emerging).

Lastly, currencies of both developed and emerging markets rose against the US dollar amid shifting of central bank monetary policies worldwide. Most currencies were positioned against the greenback at the high-ends of their six-month return ranges last Thursday. The euro, Swedish krona and Australian dollar came out as the big winners among developed currencies, with six-month returns against the US dollar above 5%. In terms of emerging currencies, the Mexican peso’s six-month return rose close to a staggering 25%—more than recovering from the 10% drop in the wake of the US election—while the Turkish lira and Egyptian pound followed, their returns settling around 15%. The Philippine peso was the one exception, with its negative return against the US dollar pushing it to the bottom of its six-month return range. Currency volatility remained low, with both currencies (developed and emerging) ending last week near or at the low-ends of their six-month volatility ranges 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.

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