Stocks Post Best Quarter Since 2009 in June on Economic Recovery Hopes
Stocks wrapped their best calendar quarter since 2009 in June as many economies continued their way out of lockdowns imposed to control the expansion of COVID-19.
The STOXX® Global 1800 Index rose 2.7% in dollar terms1 in June, for a second-quarter advance of 19.6%. The quarterly gains were the steepest since the second quarter of 2009, when indices emerged from the global financial crisis. The index is still down 5.2% for the year and 8.2% below a Feb. 12 high, as the world’s economy may be set for its widest annual contraction since the 1930s.
While the novel coronavirus pandemic is now hitting hard many emerging nations and has shown new flare-ups in countries including the US, investors are focusing on the re-opening of business activities in most developed nations. Driving optimism are hopes that the economy may rebound in a strong, or V-shaped, recovery after crashing since March.
Europe led gains in the month. The pan-European STOXX® Europe 600 Index rose 3.1% when measured in euros, while the Eurozone’s EURO STOXX 50® Index added 6.5%. The STOXX® North America 600 Index climbed 2.4% in dollars, while the STOXX® Asia/Pacific 600 Index increased 2.2%.
Chart 1 – Returns since start of 2019
Source: Qontigo, gross returns in dollars except for STOXX Europe 600 Index, which is in euros; Dec. 31, 2018 – June. 30, 2020.
Table 1 - Benchmark Indices risk and return characteristics
Source: Qontigo. Gross Returns. Data as of Jun. 30, 2020.
Emerging markets top developed nations
All but two of 25 developed markets tracked by STOXX climbed during June when measured in dollars.2 The STOXX® Developed Markets 2400 Index rose 2.6% in dollars and 1.7% in euro terms. The STOXX® Israel Total Market Index was the worst performer among the 25 developed markets, shedding 4.9% during the month.
Developing nations fared better, with the STOXX® Emerging Markets 1500 Index advancing 6.1% in dollars. All but four of 21 national markets tracked by STOXX advanced during the month.
Fifteen of 19 supersectors in the STOXX Global 1800 Index rose in the month, led by the STOXX® Global 1800 Technology Index’s 7.4% advance.3 The STOXX® Global 1800 Travel & Leisure Index came out last, losing 3.1%.
Minimum variance underperformance continues
The rebound in risk appetite has continued to weigh on minimum variance strategies, which overweight stocks with the lowest historical volatility. The strategies underperformed for a third consecutive month in June.
The STOXX® Global 1800 Minimum Variance Index rose only 0.2% during June, after lagging the benchmark STOXX Global 1800 Index by 1.5 percentage points in May and by 3.1 points in April. The STOXX® Global 1800 Minimum Variance Unconstrained Index gained 0.5% in June. The STOXX® USA 900 Minimum Variance Index and STOXX® USA 900 Minimum Variance Unconstrained Index fell 2% and 1.9%, respectively, in the month.
The STOXX® Minimum Variance Indices come in two versions. A constrained version has a similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, on the other hand, has more freedom to fulfill its minimum variance mandate within the same universe of stocks.
Dividend strategies leap ahead
Dividend strategies managed to turn around the underperforming streak of the previous five months.
The STOXX® Global Maximum Dividend 40 Index, which selects the highest-dividend-yielding stocks, rose 5.6% in dollars on a net-return basis. The STOXX® Global Select Dividend 100 Index, which tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments, added 3.9% on a gross-return basis. However, the STOXX® Global Select 100 EUR Index, which is measured in euros, rose only 0.8%. The index blends increasing dividend yields with low volatility.
All three income strategies bear double-digit loss rates for 2020.
Momentum rules in factor space
The STOXX® Factor Indices, which seek to capture proven sources of equity risk and returns, show global investors favored momentum stocks during June.
The STOXX® Global 1800 Ax Momentum Index, which tracks shares with the highest cumulative return over the last year excluding the most recent month, added 5.6%. The STOXX® Global 1800 Ax Low Risk Index, at the other end, lost 0.2%. The index tracks stocks with the lowest volatility levels.
On a regional basis, momentum also paced gains in Asia, the US and Europe during June. As was the case with the global portfolio, low risk was among the worst-performing factors across regions.
The STOXX® Global 1800 ESG-X Ax Momentum Index added 5.1%. The STOXX® ESG-X Factor Indices were introduced in May and cover major regions and countries. They implement the same factor-based methodology of the STOXX Factor Indices, seeking exposure to five style signals, but do so on slightly smaller universes that exclude stocks based on the responsible polices of leading asset owners.
For their part, the seven iSTOXX® Europe Factor Market Neutral Indices, which hold a short position in futures on the STOXX Europe 600 to help investors neutralize systematic risk, had a negative return during June.
The iSTOXX® Europe Size Factor Market Neutral Index led losses, shedding 2.6% on a net-return basis during the month. The iSTOXX® Europe Momentum Factor Market Neutral Index posted the narrowest loss: a 0.8% retreat.
All EURO STOXX® Multi Premia® and Single Premium Indices, which are exposed to the market’s systematic risk, recorded gains in the month that ended. However, they all lagged their benchmark, the EURO STOXX® Index, which rose 5%. Reversal and value were the best-performing factors during the month, according to this index family.
The STOXX® ESG-X Indices covering the global and US markets came slightly ahead of their benchmarks during June, allowing investors to generate above-market returns while complying with sustainable policies. ESG-X Indices covering Europe matched their benchmarks’ performance.
Among STOXX’s ESG and Sustainability indices, the STOXX® Global ESG Impact Index topped its benchmarks by 75 basis points during June.
The EURO STOXX 50® ESG Index, meanwhile, performed broadly in line with its benchmark. The ESG index, which is derived from the EURO STOXX 50 Index and incorporates negative exclusions and ESG scoring into stock selection, has outperformed its benchmark by more than 3 percentage points in 2020.
The DAX® 50 ESG Index, which excludes companies involved in controversial activities and integrates environmental, social and governance (ESG) scoring into stock selection, rose 6.7%, beating the advances in the flagship DAX® and in the HDAX®.
New Climate Benchmarks
June saw the introduction of the STOXX® Paris-Aligned Benchmark Indices (PABs) and STOXX® Climate Transition Benchmark Indices (CTBs). The indices follow the requirements outlined by the European Commission’s Technical Expert Group (TEG) on climate benchmarks. PABs are designed such that the resulting portfolio’s greenhouse gas (GHG) emissions are aligned with the long-term global warming target of the Paris Climate Agreement. CTBs, meanwhile, form portfolios that are on a decarbonization trajectory.
The STOXX Paris-Aligned Benchmark Indices and STOXX Climate Transition Benchmark Indices covering the global market and Europe beat their benchmarks by a significant margin during June. The EURO STOXX® Climate Transition Benchmark Index, for example, returned over 1 percentage point more than the benchmark. Those covering the US market, however, underperformed.
1 All results are total returns before taxes unless specified.
2,3 Returns net of taxes.
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Stocks Post Best Quarter Since 2009 in June on Economic Recovery Hopes
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