Risk – the dog that did not bite in 2017, says S&P DJI

Dec 14th, 2017 | By | Category: ETF and Index News

In a review of 2017, Hamish Preston, senior associate, index investment strategy at S&P Dow Jones Indices states that “risk was the dog that didn’t bite this year”.

Risk – the dog that did not bite in 2017, says S&P DJI

Hamish Preston, senior associate, index investment strategy at S&P Dow Jones Indices.

Victories for the favourite candidates in Dutch, French, German and Japanese elections did not prove a repeat of the surprises seen in 2016 votes. In addition, ultra-low stock-to-stock correlations helped the S&P Europe 350 record the lowest average monthly volatility during 2017 than in any other year in the past decade.

Low volatility also engulfed US equities, with average 1-month volatility in the S&P 500 in 2017 lower than in any year since 1970. “Market participants have seemed intensely relaxed about the expected impact of anticipated news-flow on S&P 500 constituents; 47 of the lowest 56 closing VIX levels since January 1990 have been observed in 2017, as well as two new all-time closing levels,” said Preston. This environment helped the S&P 500 VIX Short Term Futures Inverse Daily Index to a 176% year-to-date total return.

Average 30-day realized volatility in the S&P 500Risk – the dog that did not bite in 2017, says S&P DJI

Source: S&P DJI.Other notable trends in 2017 included the impact of the relative strength of the pound on UK equities. Preston noted: “The weak and wobbly value of the pound that followed Prime Minister Theresa May’s surprise decision to call a general election, and the subsequent loss of her party’s majority, helped the S&P United Kingdom BMI (denominated in pounds sterling) to outperform its euro-denominated counterpart.” However, the end of the year has witnessed a turnaround following the Bank of England’s decision to raise interest rates for the first time in a decade helped lift sterling against the euro.

Looking at factor performance in 2017, Preston highlights momentum’s strong gains across many equity markets. The S&P 500 Momentum Index has risen 28.2% so far in 2017 making it the best performing S&P 500 smart beta index. Elsewhere, in India there was a 46.0% year-to-date rise in the S&P BSE Momentum Index, and in Japan there was a 24.7% rise in the S&P Momentum Japan Large MidCap Index.

Growth stocks have also performed well in the US this year, with S&P 500 Growth returning 27.2%, making it the second-best S&P 500 smart beta index. The S&P 500 Dividend Aristocrats was third with a return of 19.9%.

Looking at country equity indices, the S&P Poland BMI was the best performer among countries in the S&P Emerging BMI, with an impressive return of 30.4% so far in 2017. The next best performing emerging countries were China (29.4%), the Czech Republic (25.8%) and India (25.7%). Russian equities have been the worst performing emerging market in 2017, losing 2.0% so far this year.

Within developed markets, Austria has been the stand out performer with a whopping 38% year-to-date return, beating South Korea to a distant second by almost 11%, while the S&P 500 has returned 18.9%.

Lastly, turning to sectors, information technology has been the top performer in 2017 – the sector’s 26.4% year-to-date return is ahead of all other S&P Global BMI sectors. “An improved outlook for the global economy supported the year-to-date returns in materials (11.4%) and industrials (11.2%),” said Preston. “Energy brought up the rear by falling 8.1% and telecommunication services (-2.6%) was the only other sector to decline.”

Tags: , , , , , , , , , , ,

Leave a Comment



More in ETF and Index News
BlackRock to transfer 50 iShares ETFs to Nasdaq or Bats
BlackRock’s iShares captures record net inflows during 2017

BlackRock has announced that its global iShares ETF business expanded at its fastest pace ever last year, collecting a record...

Angelos Gousios, director, European retail research, at Cerulli.
MiFID II to boost passives’ market share in Europe, finds Cerulli

Angelos Gousios, director, European retail research, at Cerulli, notes that MiFID II's drive for transparency on costs will shift the...

Close