VOLATILITY: It's not Panic, but it is Fear
The MSCI World index is down approximately 18 % (USD) since it peaked on February 19th. The "fear index", the VIX is above 40, indicating that investors are expecting very high volatility when they price equity derivatives. We don't see these levels very often.
The "fear index"peaked above 95 during the financial crisis of 2008, but that level was not sustained for very long.
With VIX index at 95, we likely have panic, and investors are taking equity money off the table. I will argue that we have not seen much of that yet in this downturn.
This isn't panic
In a panic, it is harder to find pricing pattern in equity markets. Investors will typically sell everything, and seek other asset classes. In this downturn, it is fairly easy to find pricing patters. -And it is not the only risk that investors are selling. The once-beloved value factor is just as significant when it comes to explaining equity returns.
Fig 1: Style Quintile MTD Performance
In the table above (fig 1), we have ranked MSCI World index members on the styles scores listed and found the performance (USD) of five groups (Quintiles) based on this ranking. Quintile 1 shows the performance of the lowest ranking stocks in this style and vice versa. The last column shows the spread between Quintile 5 and 1. This is a good and simple measure of the "Style Performance" in March, as of 9th.
We can see that "Profitability" is the winner. Companies with higher reported profitability outperformed companies with lower. At the bottom of the ranking is "Value" and "Risk". Values stocks underperformed significantly again - and the relation is stronger than we see for "Risk" in general.
Value for MSCI World
