PUTNAM GLOBAL RISK APPETITE INDEX | March 2018

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.

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Risk appetite deteriorates

SHORT-TERM TREND

February saw a reversal in appetite for risky assets

Risk

  • International equities were underperformers as the dollar stabilized in February
  • The yield curve flattened as the sell-off in rates was led by the front end of the curve
  • European government bonds and non-energy commodities had positive returns
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 February 28, 2018. 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.