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Welcome. This website is intended solely for the use of institutional investors, consultants and other professionally recognized financial intermediaries in specific countries. Intech Investment Management LLC (“Intech”), is an investment adviser registered with the United States Securities & Exchange Commission. Intech is not permitted to offer products and services in all countries. It is the responsibility of prospective investors to inform themselves of and to observe all applicable laws and regulations of any relevant jurisdictions, including the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares or securities, and any foreign exchange restrictions that may be relevant thereto. The products and services referred to in this website are not offered to any person or entity in any jurisdiction where the advertisement, offer or sale of such products and services is restricted or prohibited by law or regulation or where we would be subject to any registration or licensing requirement not currently held by Intech or our affiliates. If Intech does not offer a website for your country, please visit www.janushenderson.com.

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It should come as no surprise that the Russian invasion of Ukraine in mid-February has had a significant negative impact on markets around the world. Fears of further rises in inflation and interest rates have added to the level of strain in markets generally, with bonds and equities both in negative territory at the same time. Commodities were a significant exception, due to sharply rising energy prices in particular. Europe was especially hard hit by a major war erupting on its doorstep, but the repercussions are being felt by market participants in many ways.

Equity Market Returns

Risk levels are certainly higher, and this has been characterized by a significantly greater dispersion of returns in various dimensions, a key indicator of market strain. Most sectors posted negative returns over the period but the Energy sector stood out as an exception given the impact of the previously mentioned rising energy prices.

The charts below demonstrate the dramatic dispersion in returns between the best and worst performing sectors in U.S. and Global equities. There is a difference of 40-50% between the returns of Energy stocks and Communication Services over only a 3-month period.

Outsized Performance of Energy Sector

Such an extreme difference is unusual, as can be seen in the following charts depicting the historical differences between best and worst performing sectors. Comparable levels have only been seen twice before, around the time of the tech bubble and during the global financial crisis.

Difference in Best and Worst Performing Quarterly Sector Return

Style is another market dimension showing increased dispersion, in this case between the returns of growth and value stocks. This next chart plots the difference between the returns of the Russell 1000 Growth and Value indices. Whereas growth has dominated value for a number of years, the size of the difference in returns has increased substantially over the last two years. And although value stocks outperformed substantially in the most recent quarter, largely as a result of the outsized returns of energy stocks, it is not yet clear if value is making a sustained comeback. What is clear, however, is that the relationship between the two has certainly become more volatile.

Difference in Rolling Three-Month Returns for Russell Style Indices

The final example of increased dispersion we’re seeing is at the individual stock level. This last chart, taken from the Intech Equity Market Stress Monitor®, demonstrates the extent to which the dispersion between stock returns in U.S., European and global stocks has increased substantially over the last three months. This a measure of the spread between the best- and worst-performing stocks over time. A wider range of returns is often thought of as fertile ground for active management, but of course the dispersion of outcomes can also vary significantly, depending on which stocks you own during these periods.

Dispersion of Returns

The war in Ukraine has been the catalyst for a phase of great uncertainty in global equity markets, driven by highly volatile energy prices, fears of continuing inflation, and rising interest rates. This can be seen by extreme levels of dispersion between sector, style and individual stock returns, all of which are indicative of significant strain in the market.

Navigating market conditions such as these requires a long term-view, a disciplined approach to maintaining diversified portfolios, and a prudent approach to building in resilience to your equity allocations in order to mitigate the negative impact of unforeseen future shocks.

Download the Full Report

Look beyond conventional narratives and risk metrics. Each quarter, Intech examines equity market stability around the world through the lens of the Intech Equity Market Stress Monitor ― a collection of five reliable metrics of market strain that can help you gain additional insight to market risk regimes.

Download Full Q2 Report

 

The views presented are for general informational purposes only and are not intended as investment advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation, or sponsorship of any company, security, advisory service, or fund. Nor do they purport to address the financial objectives or specific investment needs of any individual reader, investor, or organization. The views are subject to change at any time based upon market or other conditions, are current as of the date of the webcast, and may be superseded by subsequent market events or other conditions.

The information, analyses and/or opinions expressed are for general information only, and are not intended to provide any specific financial, economic, tax, legal, investment advice, or recommendations for any investor. This webcast should not relied on as the sole basis for investment decisions.

While every attempt is made to ensure that all information is accurate, there is no representation or warranty, express or implied, as to the accuracy and completeness of the statements or any information contained in this webcast. Any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.

Past performance does not predict future returns. Investing involves risk, including fluctuation in value, the possible loss of principal, and total loss of investment.

This blog should not be copied, distributed, published, or reproduced, in whole or in part, without permission from Intech.

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 This information is issued by Intech Investment Management LLC (Intech) and is intended solely for the use of wholesale clients as defined in section 761G of the Corporations Act 2001 (Cth) and is not for general public distribution. Intech is permitted to provide certain financial services to wholesale clients pursuant to an exemption from the need to hold an Australian financial services licence under the Corporations Act 2001. Intech is regulated by the United States Securities & Exchange Commission (SEC) under U.S. laws, which differ from Australian laws. By receiving this information you represent that you are a wholesale client.