Qontigo’s ROOF Scores were created to quantify an investor’s risk appetite. Are they bullish, neutral, or bearish? ROOF is an acronym for Risk-On/Risk-OFF. We produce two variants of the ROOF Scores per market using our fundamental multi-factor risk models:
- The Style ROOF variant maps eight of our fundamental style factors.
- The Sector ROOF variant maps each of the eleven GICS (2018) sectors.
Additionally, both variants incorporate two additional metrics on the recent change in risk in the market. ROOF Scores are computed and available daily. For more information, please download our methodology documents for both the Style ROOF and the Sector ROOF.
We will be using the ROOF Score methodology in our market commentary, as well as including them in our quarterly insight webinars for discussions. Do reach out to your Qontigo representative if you would like more information on the ROOF Scores for your market.
June 29, 2020: Qontigo ROOFTM Score Highlights
Investor sentiment hovers above the neutral zone like buzzing flies over a dung heap for the third consecutive week. The decline in risk tolerance was halted by positive economic data for May from the reopening phase. Simultaneously, the rise in risk-aversion, started by an increasingly negative narrative around a second wave of Covid-19 cases, has also slowed. Fear of missing out (FOMO) means investors are looking for reasons not to buy instead of reasons to sell. The next few weeks will see positive backward-looking economic data continue to battle negative numbers on the Covid-19 front. The tipping point is likely to only be met when either talks of a second wave of lockdown measures is heard, or China makes good on its threat to pull-out of the Phase One trade deal. A wise man once said, the best time to build the roof is before the rain. The probability of a W-shape recovery instead of a V- or U-shape one, is increasing with every new case. Read More >
June 22, 2020: Qontigo ROOFTM Score Highlights*
Investor sentiment continue to adjust to the coronavirus narrative. News of spikes in new cases in the US and China has increased the odds of a U-shape recovery scenario. The high level of positive confirmation bias since late April has prevented an over-reaction to negative news thus far, but as this bias veer to neutral, sentiment becomes sensitive to increases in uncertainty. A second wave of infections resulting in preventive measures hampering economic activity will trigger a negative confirmation bias leaving the market vulnerable to over-reaction to worsening news. Sentiment and markets are now both well off their highs of early June. Volatility, meanwhile, has risen in line with the uncertainty level surrounding the shape of the economic recovery curve. Investors are now facing higher risks, a lower visibility of returns, and a 30%-ish gain for Q2 behind them. With risk appetite softening for the fourth consecutive week, it may be time for profit-taking. Read More >
*This issue of the Qontigo ROOF Scores contains data only up to Thursday, June 18th, 2020.
June 15, 2020: Qontigo ROOFTM Score Highlights
Sentiment kept its head just above neutral water this week, in a new QE-assisted normal where Neutral is the new Bearish. The recent divergence between our two ROOF variants (Style and Sector), has closed with both now telling the same curbed enthusiasm story, but the disconnect between Wall Street and Main Street remains. Where once there was fundamental research and rigorous risk management, now there is FOMO (fear of missing out). Central banks have taken downside risk out of play, allowing investors to forget about what could be and focus instead on what could have been. Still, for the past three weeks now, there are clear signs that FOMO has taken a decidedly risk-averse quality. It started with investors rebalancing their bullish bets towards risk-averse styles and has now been followed by a marked proclivity for risk-averse sectors. The risk from here is that what supports this ongoing rally is really nothing more than a series of emotional dominoes, sentimental trip wires, which if hit in rapid succession, as we saw last Thursday, could rapidly topple the market. Read More >
June 8, 2020: Qontigo ROOFTM Score Highlights
Sentiment remains positive globally going into this week, but there continues to be signs that investors are growing wary of the disconnect between Wall Street and Main Street. This divergence comes as markets deal in relatives, while the economy deals in absolutes. Stimulus packages have put a floor under both, but while markets have thought of them as additive, they were really meant to avoid the hardest of hard landings (i.e. a lifeline to keep the most vital parts of the economy afloat until a return to a new normal – whatever that will be). The V-shape recovery scenario markets have already discounted did not include prolonged protests, a resurgence of new cases, a deteriorating relationship between the US and China, or failed trade negotiations. On the positive side, were these issues to be well dealt with, the probability of a successful V-shape recovery would increase, but that would require good leadership. Read more >
June 1, 2020: Qontigo ROOFTM Score Highlights
As the re-opening of economies turns to Asia, we see investor sentiment in those markets (Asia ex-Japan and Japan) continue to rise on strong momentum. Elsewhere, both sentiment and momentum, which had both gotten far ahead of market returns, are receding for the second week in a row, but (except China) remain in bullish territory as investors await economic data releases pointing (or not) to a V-shape recovery scenario. Economic data confirming (or denying) a successful recovery will not be readily available until July, which is a long wait. For now, optimism remains intact but the relationship between sentiment and markets seem fragile. In an environment where massive stimulus packages from central banks seems to have taken a return to bearish territory out of play, is ‘neutral’ the new bearish. Read more >
May 25, 2020: Qontigo ROOFTM Score Highlights
Sentiment remained bullish last week in all markets we track except China (which never quite got there) but momentum has declined across the board with some, US and Europe in particular, seeing lower sentiment than the previous week. Since mid-April, investor sentiment has been far ahead of market returns. The lack of positive news to trigger this confirmation bias into strong buying behavior translated into a flat market. A month-long divergence between markets and sentiment is beginning to weigh on the latter with risk tolerance declining as risk aversion begins to rise again in a warning to investors that while the odds may still look good, the goods may soon look odd. Read More >