We are now officially in bear market territory. As I write this the FTSE 100 is at 6043 and is down 21.3% from its peak level at 7674. The FTSE 250 has fallen slightly less (obvious given its lower materials and energy exposure) and is at 17805, down from 22109. That represents a 19.5% fall.

I’ve started slowly but steadily buying again. I’ve probably mistimed it but who the heck knows.

Some interesting stats are coming in thick and fast though. First up in ETF land a big shift is underway. ETF researchers at SocGen report that investors are steadily dumping mainstream benchmark indices in favor of more factor or thematic/sectoral products. Crucially ESG investing is becoming more prevalent as a defensive strategy – obviously, I guess given the hammering of energy stocks.

So, money is flowing out of the following: -$7.3bn from US indices, -$5.3bn from Japan, -$3.6bn from EM and -$0.7bn from Europe.

According to SG In February, ESG ETFs collected $5.5bn in net new assets, slightly below the all-time high of $6.3bn creations recorded in January. Factors posted $3.7bn in net inflows. Although significant when compared to total equity flows (77%), creations on factor ETFs were half the ones recorded on average over the past 12 months (+$8.3bn). Sector ETFs attracted $2.9bn fresh assets.

“Over the past 12 months, factor ETFs have gathered the bulk of equity inflows, with $100bn cumulative net new assets, compared to $32bn for ESG ETFs and $15bn for sector ETFs. By contrast, traditional benchmarks (excluding the US) erased $20bn in assets over the same period. European, Japanese and Emerging Markets national and regional equity ETFs all faced net outflows over one year. Only US benchmarks posted net creations.”

MSCI on multiple standard deviation events

Analysts at MSCI have also been crunching the number of styles and sectors. Their observations:

  • In the last week of February, the drop in airlines globally was over eight standard deviations and consumer services fell by over six standard deviations. The moves were not as dramatic on the positive side, but some industries in the health care and consumer staples sectors gained by two or more standard deviations.
  • Style factors: Both beta and residual volatility made large negative moves as has been typical during previous large market drops, but the movements in other traditional style factors such as momentum, earnings yield, size and earnings quality were unremarkable. The large negative move in the liquidity factor indicates that “hot stocks” — those with very high trading volume for their size — sold off much more than “neglected stocks” — those with low trading volume for their size. This suggests investors may have sold off the most liquid names in their portfolios first to raise cash in response to a rapidly changing market.
  • Country factors: Those in Asia and the greater China region fared best, including China, Hong Kong, Taiwan and Singapore, perhaps because the impact of the epidemic had already been priced in during the early stages of the epidemic. In contrast, those in Europe and the Americas, which fell very little at the start of the epidemic, suffered the most during the last week of February.

The MSCI analysts also looked at how long previous bouts of volatility have lasted. On their numbers based on past events “it took about six months for the VIX to close below 20 following the event date, but there was a very wide range in this duration. More recent spikes in volatility subsided much more rapidly — in a matter of weeks rather than months.”

Last but by no means least Morgan Stanley European equity analysts have just taken a red marker pen to their 2020 numbers…

“We cut our 2020 EPS growth forecast from +2% to -2% to reflect our economists’ GDP downgrades. We expect markets to remain volatile in the short-term until we get more clarity on the extent of GDP & EPS downside. Upgrade Software & Consumer Staples.”