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Securian AM Market Volatility update April 3, 2020

Recent Market Commentary

Portfolio positioning

We expect volatility to remain elevated, and the low equity exposure across our Managed Volatility strategies right now reflects this view. While we do not think a sharp rally from here is warranted in any fundamental sense, monetary policy has consistently inflated risk asset prices in the past. As such, we continue to carry upside hedges across strategies to ensure some participation in any near-term rally, rational or otherwise.

Equity exposure 1/1/20 4/3/20 High Low Average
Securian AM Dynamic Managed Volatility 80.3% 19.8% 80.8% 19.0% 54.9%
Securian AM Managed Volatility Equity 99.0% 18.9% 99.6% 13.6% 70.2%
Securian AM Managed Volatility S&P 500 141.0% 28.8% 141.6% 26.9% 93.8%
Volatility metrics 1/1/20 4/3/20 High Low Average
S&P 20 Day Trailing 6.5% 95.5% 97.1% 6.5% 56.5%
CBOE VIX 12.5% 46.8% 82.7% 12.1% 32.2%

Source: Bloomberg, Securian Asset Management, Inc.

The options market has continued to express some relative optimism about the near-term trajectory of the equity market. The VIX decreased from 65.5 to 46.8, and one month, 25-delta put skew also decreased 3.9%.

We are less optimistic than this. The recent economic data releases that include the preliminary impacts of the coronavirus pandemic have been abysmal. For instance, the enormous initial jobless claims number the Department of Labor released on March 20th (3.307 million). The subsequent weekly release on March 27th was more than double that, at 6.648 million. There simply are no modern parallels for the economic impact of an essentially nationwide “shelter-in-place” order. For example, a recent article in the Wall Street Journal estimated that 25% of the US economy has been taken offline. We are hard-pressed to believe the S&P 500 low turned in on March 23rd (2237.40, or -3.8% off the prior high) will be the ultimate nadir of this Implied volatility actually struck a bit more optimistic tone. The CBOE VIX remained in the 60s throughout the week, which is deeply inverted relative to the realized volatility previously mentioned. In fact,

Recent Market Commentary

The domestic equity market set two new, diametrically-opposed records the week of March 30th:

  • This March saw the highest ever S&P 500 realized volatility at 93.4%, surpassing the previous record of 91.0% set in October 1987. For reference, October 2008 had the highest realized volatility during the Great Financial Crisis (80.8%).
  • April 3rd saw the largest ever VIX – 1M realized inversion at -46.3%, which extended the already record-setting inversion seen in the last two weeks

An inversion of implied volatility, relative to realized, is the options market expressing the expectation that implied volatility will decrease from its current level. For example, the largest inversion outside of this current volatility flare (-36.6%) was on November 11th 2008. At that point, realized 1M volatility was 84.3%. By December 31st 2008, realized 1M volatility had decreased to 38.2%.

The evolution of recent one-week volatility would suggest the market is on a similar volatility trajectory:

  • 03/02 – 03/06: 62.1%
  • 03/09 – 03/13: 130.6%
  • 03/16 – 03/20: 106.6%
  • 03/23 – 03/27: 89.2%
  • 03/30 – 04/03: 50.2%

While we think it is likely that realized volatility will come down from the current historic levels, we do not anticipate volatility returning to anything close to average in the near term.

Managed Volatility portfolio management team

Craig Stapleton, bio photo

Craig Stapleton, CFA, FRM

Senior Vice President & Portfolio Manager

Jeremy Gogos, bio photo

Jeremy Gogos, Ph.D., CFA

Vice President & Portfolio Manager

Merlin Erickson, bio photo

Merlin Erickson

Vice President & Portfolio Manager

The opinions expressed herein represent the current, good faith views of the authors at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented in this article has been developed internally and/or obtained from sources believed to be reliable; however, Securian AM does not guarantee the accuracy, adequacy or completeness of such information. Predictions, opinions, and other information contained in this article are subject to change continually and without notice of any kind and may no longer be true after the date indicated. Any forward-looking statements speak only as of the date they are made, and Securian AM assumes no duty to and does not undertake to update forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Actual results could differ materially from those anticipated.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Please note an investor cannot invest directly in an index. Dynamic Managed Volatility Equity Exposure represents total exposure to equites for the Dynamic Managed Volatility representative account. Managed Volatility Equity – Equity Exposure represents total exposure to equites for the Managed Volatility Equity representative account.


Bloomberg and Securian Asset Management, Inc.

Wall Street Journal; “State Shutdowns Have Taken at Least a Quarter of U.S. Economy Offline

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