Volatility: Angels in the details

Written by: Global Thought Leadership | April 13, 2018

Source: Bloomberg, April 12, 2018 Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The Bottom Line

  • By most measures, 2018 has given stock investors a rough ride. For a mostly break-even year, markets have generated two significant downdrafts,[1] one of which, at
    -10.2%, qualifies as a bona fide correction. With a range of 8.98 to 50.2, the CBOE S&P500 Volatility Index (the Vix) reflects this year’s choppy waters.
  • The common belief that high volatility means lower returns is borne out by looking at both indexes broken out by week.  For the 15 trading weeks in 2018 so far, when volatility jumped, index returns fell.
  • And the 11 industry groups produced narrow return dispersion, ranging from 0.69% (Materials) to 0.02% (Financials).
  • But within the index overall, there was a very different tale to tell: the top 5 stocks[2]  rose between 33% and 61% each; the bottom five fell between -26% and -39%.[3]
  • The bottom line: Market turbulence can generate substantial opportunities as well as substantial risks. But an overall index can cloud that view – and might preclude taking full advantage of available opportunities.
  • Active, research-driven investment management looks beyond indexes, and within sectors to seek value the market might misprice – or overlook.

[1] All data Source: Bloomberg. For the S&P 500, January 16 – Feb 8, 2018, -10.16%; March 9 – March 23, -7.12%.

[2] Netflix, XL Group, Seagate Technology, CSRA, Red Hat

[3] Incyte, Albermarle, Signet Jewelers, Patterson Cos, L Brands


Active management does not ensure gains or protect against market declines.

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.