The STOXX® Global 1800 Index posted its best August on record, climbing to an all-time high, as investors raised their expectations that an economic recovery from the COVID-19 pandemic is gaining momentum.
The global equity index rose 6.8% in dollar terms1 during the month, taking its recovery from the lows in March to 55%. The index has fully erased the losses caused by lockdowns aimed at limiting the spread of the novel coronavirus, and is now up 6% for 2020.
Gains were underpinned by continuing strength in US shares. The STOXX® North America 600 Index climbed 7.4% in dollars and the STOXX® USA 500 Index advanced 7.6%, both topping their previous record high set in February.2 The pan-European STOXX® Europe 600 Index rose 3.1% when measured in euros, while the Eurozone’s EURO STOXX 50® Index added 3.2%. The STOXX® Asia/Pacific 600 Index increased 7.6% in dollars.
For a look at the drivers behind the outperformance of US shares, visit our recent post here.
Bullish standing
Extraordinary government and monetary policy stimulus, and business indicators pointing to a rebound in activity, have fueled investors’ optimism since April. The bullish positioning has lifted indices to gains this year, even as the world economy is set for its deepest annual contraction since the 1930s and unemployment has spiked to record highs in many large countries.
Exhibit 1 – Returns since start of 2020
Source: Qontigo index data, gross returns in dollars except for STOXX Europe 600 Index, which is in euros; Dec. 31, 2019 – Aug. 31, 2020.
Exhibit 2 – Benchmark Indices risk and return characteristics
Source: Qontigo. Gross Returns. Data as of Aug. 31, 2020.
Emerging markets and developed nations
All 25 developed markets tracked by STOXX climbed during August when measured in dollars, led by the STOXX® Hong Kong Total Market Index’s 10.3% advance. The STOXX® Developed Markets 2400 Index rose 6.6% in dollars and 5.4% in euro terms.
The STOXX® Emerging Markets 1500 Index climbed a more modest 0.5% in dollars. Eleven of 21 national developing markets tracked by STOXX advanced during the month. The STOXX® Turkey Total Market Index fell the most, shedding 8.9%.
All but one of 19 supersectors in the STOXX Global 1800 Index rose. The STOXX® Global 1800 Utilities Index was the exception after it shed 1.2%. The STOXX® Global 1800 Automobiles & Parts Index was the top performer, rising 27.7%.
Sustainability strategies
The STOXX® Global 1800 ESG-X Index came up broadly in line with its benchmark during August, allowing investors to generate market-type returns while complying with sustainable policies. The STOXX® ESG-X Indices covering Europe underperformed slightly.
The EURO STOXX 50® ESG Index trailed its benchmark by 27 basis points, its first monthly underperformance in seven months. The environmental, social and governance (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 almost 4 percentage points in 2020.
The DAX® 50 ESG Index, which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, rose 5.8%, beating the flagship DAX®.
Climate Benchmarks
The STOXX® Paris-Aligned Benchmark Indices (PABs) and STOXX® Climate Transition Benchmark Indices (CTBs) covering global and US markets came up ahead of their benchmarks during August. Those covering the Eurozone market underperformed.
The PAB indices are based on liquid securities from a selection of STOXX benchmark indices and follow the EU Paris-Aligned Benchmark (EU PAB) requirements outlined by the European Commission’s Technical Expert Group (TEG) on climate benchmarks.
The CTBs, which also follow the requirements outlined by the TEG, form portfolios that are on a decarbonization trajectory. The PAB and CTB indices were introduced in June.
Finally, the STOXX® Global Climate Change Leaders Index, which selects corporate leaders that are publicly committed to reducing their carbon footprint, topped the benchmark STOXX Global 1800 by 38 points in August.
Momentum rules in global universe
Momentum has been a winning factor this year, and in August it led in only some markets, according to the STOXX® Factor Indices, which seek to capture proven sources of equity risk and returns.
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 7.4%, beating all other style indices in the global factor indices family.
On a regional basis, style performances appeared more diverse. The STOXX® Europe 600 Ax Quality Index, STOXX® USA 500 Ax Momentum Index and STOXX® Asia/Pacific 600 Ax Size Index led gains in their respective markets.
The STOXX® Global 1800 ESG-X Ax Momentum Index added 7.2%. 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.
Minimum variance lags
Minimum variance strategies struggled on a relative basis during the month. The STOXX® Global 1800 Minimum Variance Index added 3.4%, while the STOXX® Global 1800 Minimum Variance Unconstrained Index gained 2.1%. The STOXX® USA 900 Minimum Variance Index rose 3.4% and the STOXX® USA 900 Minimum Variance Unconstrained Index advanced 0.9%.
The STOXX® Europe 600 Minimum Variance Index rose 1% and its unconstrained version climbed 2.2%, both significantly trailing their benchmark.
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.
Thematic indices
The STOXX® Thematic Indices seek exposure to the economic upside of disruptive global megatrends and follow two approaches: revenue-based and artificial-intelligence-driven. All 22 STOXX revenue-based thematic indices had positive returns during August, although only six of them outperformed the STOXX Global 1800 Index.
The STOXX® Global Electric Vehicles & Driving Technology Index was the month’s top performer, with a 12.8% jump. Year-to-date, the STOXX® Global Smart Cities Index is the best-performing gauge in the STOXX Thematics family, having risen 50.2%.
Two of three STOXX artificial-intelligence-driven thematic indices, the STOXX® AI Global Artificial Intelligence Index and its ADTV5 version, continued their streak of outsized relative returns during August.
Featured indices
STOXX® Global 1800 Index
EURO STOXX 50® Index
STOXX® Europe 600 Index
STOXX® North America 600 Index
STOXX® Asia/Pacific 600 Index
STOXX® USA 500 Index
STOXX® Developed Markets 2400 Index
STOXX® Emerging Markets 1500 Index
STOXX® Global 1800 Minimum Variance Index
STOXX® Europe 600 Minimum Variance Index
STOXX® Factor Indices
STOXX® ESG-X Factor Indices
EURO STOXX 50® ESG Index
DAX® 50 ESG Index
STOXX® Paris-Aligned Benchmark Indices
STOXX® Climate Transition Benchmark Indices
STOXX Thematic Indices
1 All results are total returns before taxes unless specified.
2 Record levels excluding dividends (price returns).