A recent Wall Street Journal article (The Only Six Stocks That Matter, July 27) described the impact of six stocks on the strong performance of the Nasdaq Composite Index this year. In this research brief, Axioma puts those same stocks under the risk microscope. Not only did their risk change more than other stocks in the benchmark, but it increased more than their weights. What does this mean for the overall risk of the benchmark and can index risk give us a clue about the index•s future direction?
For the second year running, Axioma’s CEO Sebastian Ceria was included in Institutional Investor’s Tech 50.
Low-volatility themed strategies have been among the most popular “smart beta” index products introduced in recent years, and minimum variance in particular has become a widely adopted approach to implementing low-volatility exposure. In the following analysis, we consider to what extent is the “theoretical” low risk of these strategies driven by illiquidity masquerading as low volatility? Do returns of minimum variance strategies encapsulate some form of liquidity premium in addition to the outperformance of low risk stocks? And, if there is a tendency to tilt towards smaller and less liquid stocks, what can be done to ensure tradability of minimum variance portfolios?
Journal of Index Investing
But North American Benchmarks Refuse to Be Spooked, according to Axioma Quarterly Risk Report
NEW YORK, July 15, 2015 – Market risk surged in the second quarter, driven by angst over China’s market plunge, the off-again/on-again Greek bailout, and a sharp increase in bond volatility. In contrast, energy prices stabilized, lowering the oil sector’s volatility, according to a report released today by Axioma, Inc. Read more…
In this research brief, we explore the history of the current Greek crisis, review approaches taken by market practitioners to stress testing, outline potential scenarios that portfolio managers may wish to examine and show how Axioma’s risk management and portfolio analytics tools can be applied to stress test a model portfolio of European bonds and equities.
Research Paper No. 058
Axioma Quarterly Risk Report Cites Currency Risk as a Notable Outlier
NEW YORK, May 20, 2015 – Market risk unexpectedly eased in the first quarter, despite a raft of concerns ranging from growth issues in Europe, China and Japan; falling oil prices; currency weakness against the U.S. dollar and the crisis in Greece, according to a report released today by Axioma, Inc., a leading provider of advanced tools for risk management and portfolio construction. Read more…
The widespread availability of passive products have investors asking: Why pay for active management if I can potentially do just as well with a passive product? Active managers must respond, demonstrating the value of their products and substantiating that value by demonstrating consistent and repeatable investment skill. Performance attribution is a natural starting point for assessing the value of an investment product. One of the issues encountered when using standard attribution methods is that the structure used to decompose returns—a classification scheme for Brinson-based attribution and a linear returns model for factor-based attribution—may not match the investment process of the portfolio manager. In this paper, we contend that investment managers should tailor attribution methods to match their investment processes, highlighting sources of portfolio returns that correspond to their intended bets and showing that these sources are statistically significant overtime. The goals of this paper are two-fold: first, we identify issues commonly encountered with standard, off-the-shelf performance attribution methodologies, and, second, we suggest ways to customize and extend these methodologies to yield attribution results that better match the investment process at hand.
Research Paper No. 057