As the economy changes, which stocks are most and least exposed?

After a time of seemingly economic stability, the potential for economic shock is growing.  With looming trade wars and trade war disruptions, concerns over interest rates, and the usual turmoil going into a presidential election cycle, we used the MacroRisk platform to identify the ten S&P stocks with the highest exposure to 18 key economic factors and the 10 with the lowest exposure to these factors.

The MacroRisk platform provides daily estimates of a “MacroRisk level” for almost every traded U.S. and Canadian stock and fund, using a proprietary set of 18 “Eta® Factors” including International factors (Euro, FTSE100, Tokyo Stock Exchange, and Ag Exports), Prices (Energy, CPI, Gold), Monetary factors (Monetary Base and M2), and Domestic factors (unemployment rate, corporate cash flow, auto sales, and orders for new durable goods).  The “MacroRisk Level” measures the overall exposure of assets and portfolios to these 18 factors.

For comparison, here are the current values of several key indices:

Index MacroRisk Level
Russell Midcap 46
S&P Equal Weight 47
Wilshire 5000 49
Russell 1000 55
S&P 500 59
MSCI Emerging Markets 61
NASDAQ Comp 62
S&P MidCap 400 69
Dow Jones 30 75
Russell 2000 106

We then used the MacroRisk.com platform and screened over the current constituents of the S&P 500 index and identified the following as the stocks with the greatest exposure:

Name Symbol MacroRisk Level
Nektar Therapeutics NKTR 939
ABIOMED Inc ABMD 552
Micron Technology Inc MU 502
Align Technology Inc ALGN 479
Hollyfrontier Corp HFC 478
Netflix Inc NFLX 477
Advanced Micro Devices Inc AMD 475
IPG Photonics Corp IPGP 456
Xilinx Inc XLNX 422
Anadarko Petroleum Corp APC 415

The following are the lowest ten in terms of MacroRisk level:

Name Symbol MacroRisk Level
Westar Energy Inc EVRG 61
Loews Corp L 62
Torchmark Corp TMK 65
Omnicom Group Inc OMC 70
Intercontinental Exchange Inc ICE 71
AFLAC Inc AFL 74
Digital Realty Trust Inc DLR 76
Alexandria Real Estate Equities Inc ARE 78
Huntington Bancshares Inc HBAN 78
Boston Properties Inc BXP 79

The following chart shows some summary statistics and the graphical presentation of an equally weighted portfolio of the ten highest MacroRisk Level stocks, the ten lowest MacroRisk Level stocks, and the SPY as a measure of overall market attainability.

A final measure is to compute the ratio of the total return to the corresponding standard deviation of returns for the low exposure, high exposure, and SPY portfolios.  This measure is like a Sharpe ratio and measures return per unit risk.

Using this method, the return to risk ratio for the SPY is 0.916, the ratio for the high exposure portfolio is 0.657, and the ratio for the low exposure portfolio is 1.293 using data from 1/1/2019 through the end of May.

While the SPY and high exposure portfolios have generally produced higher returns over this period, the smooth dark blue line, the low MacroRisk Level stocks, produced a superior risk adjusted return. Investors interested in diversifying away exposure to economic exposure during the coming months may want to consider this type of analysis using www.MacroRisk.com.

New asset allocation tools released!

We have added “Asset Allocation” tools to the “Fiduciary Optimization” and “Institutional Research” subscription levels!  With the new tools, risk parity, generalized MPT, and minimum variance optimization join the existing Optimization Tool offering MacroRisk’s patented Black Swan optimization, maximum Sharpe and Sortino portfolios, and benchmark replication routines.