White Paper

March Mayhem: Was Your Portfolio Betrayed by Beta?

Adrian Banner, PhD Chief Investment Officer
David Schofield President, International Division
Richard Yasenchak, CFA Senior Managing Director, Head of Client Portfolio Management

Key Ideas

  • Investors found few places to hide in the recent and sudden equity market drawdown. Even previously defensive, low-beta stocks weren’t exempt from losses.
  • In this paper, we share our  observations of an anomalous shift in equity betas across the market, in the form of a sharp decline in correlations of stock betas and a narrowing of the overall beta spread.
  • We believe this unusual behavior is likely to be short-lived and its impact may be mitigated by portfolio construction approaches. Long-term, however, we believe the rewards of systematic defensive equity strategies remain intact.

March 2020 saw a dramatic increase in the volatility of equities worldwide, as the magnitude of the economic impact of the COVID-19 pandemic became increasingly undeniable. The sell-off in stocks was unusually broad-based; very few stocks escaped a large drawdown — even previously defensive, low-beta stocks, which may have been expected to provide some refuge in the sharp market decline we saw in March. There were very few places to hide. But why?