In 2022, equity markets posted their worst calendar year return since the global financial crisis in 2008, as losses this year were significant. During the year, there was a substantial change in style leadership where growth stocks strongly underperformed value stocks.
The mega-cap growth stocks plummeted during the year. As a result, the equal-weighted index outperformed the cap-weighted index. The risk to the top of the market was featured in our work over the past several years. We expect this theme to continue with a potential for geographic consequence as well – it’s difficult for the U.S. to outperform the World ex. U.S. when the mega-cap stocks, predominately U.S. growth stocks, continue to underperform the average stock.
The strength in value stocks (and lack of performance in growth stocks) can be explained by the substantial performance in energy stocks – making for historic sector dispersion between the best and worst-performing sectors.
As volatility spiked during the year, low-volatility portfolios strongly outperformed the broad market indexes, as expected. Yet, equity volatility remains relatively low, given historical observations and based on sharp rises in Bond and FX volatility. It’s challenging to think that the VIX index, which is a proxy for equity volatility, won’t rise too.
Additionally, we are already seeing an increase in systematic risk rising as the correlation of returns among stocks increased sharply throughout the year, and it is now above median levels in many equity markets. This reflects a shift whereby systematic risks, as opposed to idiosyncratic risks, significantly influence overall stock returns.
The higher daily volatility, drawdowns, and cross-asset correlations we saw last year have the potential to stay with us in the years ahead. As such, we are currently working with a partner to deliver an innovative equity strategy engineered to deliver alpha in all markets, navigate time-varying volatility, and provide convexity in sharp drawdowns. We’ll share more in the months ahead.
Download the Full Report
We must look beyond conventional narratives and risk metrics in today’s markets. So each quarter, Intech examines equity market stability 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 into market risk regimes.
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 indicated, 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. It 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 report. Any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.
Past performance is no guarantee of future results. Investing involves risk, including fluctuation in value, the possible loss of principal, and total loss of investment.
An index is unmanaged, is not available for direct investment, and does not reflect the deduction of management fees or other expenses.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report has not been approved, reviewed, or produced by MSCI.
This presentation has been developed solely by Intech and are not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group©”). FTSE® and Russell® are trademarks of the relevant LSE Group© companies and are used by any other LSE Group© company under license. All rights in the FTSE/Russell indexes or data vest in the relevant LSE Group© company, which owns the index or the data. Neither LSE Group© nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained herein. No further distribution of data from the LSE Group© is permitted without the relevant LSE Group© company’s express written consent. The LSE Group© does not promote, sponsor, or endorse the content of this presentation.
S&P 500 Dow Jones Indices LLC and/or its affiliates make no express or implied warranties or representations and shall have no liability whatsoever with respect to any S&P data contained herein. The S&P data has been licensed for use by Intech and may not be further redistributed or used as a basis for other indices or any securities or financial products. This presentation has not been approved, reviewed, or produced by S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices, please visit www.spdji.com.
This presentation or information contained in it may be restricted by law, may not be reproduced or referred to without express written permission or used in any jurisdiction or circumstance in which its use would be unlawful. We are not responsible for any unlawful distribution of this material to any third parties, in whole or in part. The contents of this material have not been approved or endorsed by any regulatory agency.
For Europe Investors – Important Information:
This document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution.
Past performance does not predict future returns. Marketing communication. The value of an investment and the income from it can fall as well as rise and investors may not get back the amount originally invested. There is no assurance the stated objective(s) will be met. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell, purchase or hold any investment.
There is no assurance that the investment process will consistently lead to successful investing. Any risk management process discussed includes an effort to monitor and manage risk which should not be confused with and does not imply low risk or the ability to control certain risk factors.
Various account minimums or other eligibility qualifications apply depending on the investment strategy, vehicle or investor jurisdiction. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.
Issued in Europe by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). Investment management services may be provided together with participating affiliates in other regions.
Janus Henderson, Knowledge Shared and Knowledge Labs are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc.
For Australian Investors:
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.