PUTNAM GLOBAL RISK APPETITE INDEX | February 2017

The Putnam Global Risk Appetite (RA) Index is a proprietary quantitative model that aims to measure investors’ willingness to invest in risky assets, including equities, commodities, high-yield bonds, and other spread sectors. With a composite view of risk-appetite signals across a broad mix of asset types, Putnam’s RA Index provides a framework for discussing investor preferences and can signal trend changes in broad market sentiment.


Risk appetite remained positive in January

SHORT-TERM TREND

January was another positive month for risky assets as bond markets stabilized somewhat and the U.S. dollar sold off.

Risk

  • Risk appetite was notably strong for a variety of non-U.S. risky assets, including Japanese equities and EM corporate debt.
  • In the near term, we expect higher volatility until the market becomes more comfortable with President Trump’s policy agenda.
LONG-TERM CYCLE

This 10-year illustration captures the cyclicality of investors’ appetite for risk.

Sept ’08

With Lehman Brothers’ bankruptcy and the onset of the global financial crisis, appetite for risk all but disappears.

Sept–Nov ’11

Eruption and subsequent clearing of concerns over EU sovereign debt crisis, U.S. debt ceiling, and fear of China hard landing drive major risk selloff and rally.

March–Sept ’16

Risk assets rally amid improving commodity prices, perceived stability in China's macro data, and expectations for gradualist Fed policy.

Source: Putnam. Data as of January 31, 2017. To create the Global Risk Appetite Index, we weigh the monthly excess returns of 30 different asset classes over 3-month T-bills relative to the trailing 2-year volatility of each asset class. The higher the excess return and the lower the volatility, the greater the risk appetite; conversely, the lower the excess return and the higher the volatility, the stronger the risk aversion.