Risk Indicator turned to negative today!
Our Global Risk Indicator for managing multi-asset portfolios shifted into negative territory today, August 23rd, signaling a deterioration in the risk-return outlook of the market. This has prompted us to adopt a more defensive position in our strategies. We had already significantly reduced the risk in our strategies on August 16th, aligning them with each client's reference portfolio in terms of risk.
The entry into negative territory is mainly a result of the recent strong degradation in the Market cluster of the indicator, which had been trending negatively since early August. While all three subcomponents of the cluster - Medium-term, Long-term, and Volatility - have deteriorated, it's the latter two that have had a more pronounced impact on the overall indicator.
In the Long-term sub-cluster, degradation began with smaller-cap U.S. companies and the Japanese sub-components, with recent declines in other sub-components such as the S&P500 and FTSE. In the Volatility sub-cluster, the deterioration initially affected European indices and subsequently spread to emerging markets, the U.S., and ultimately, Asian markets.
The second cluster that makes up the overall indicator, the Economic Cycle, continues to degrade, albeit at a slower pace, having been in negative territory since May of this year. The recent deterioration primarily stems from the decline in the Cycle Trend sub-cluster. Key contributors to this decline include falling commodity prices and recent developments in the U.S. yield curve, adding to the previous degradation of the industrial production indicator and the slower deterioration of the U.S. employment indicator.
We will continue to monitor the evolution of our indicators and re-enter the market once the risk-return outlook becomes more attractive.