A lthough the quarter's view remains intact - large growth continues to outperform while small companies, particularly small value companies, underperform - the recent month has been dominated by another short term feature. During January the smaller value sector dropped particularly sharply while value, including both large and small capitalisations, gained.
This reaction is very conspicuous and it is easily interpreted according to the early formative mechanics of the European Monetary Union. The smaller, non-distinguished (low visible growth potential) securities are being left behind as European market integration focuses investor attention on larger index candidates and the more noteworthy within the smaller company sector.
But the individual month's pattern should not be overly interpreted.
The underperformance appears to be concentrated within a small segment of the market (10% on our decomposition) and applies only to one month's data.
Nonetheless, it is of more than passing interest that the large value sector of the market appears to have stabilised, at least over the short term. This is very different from the situation within the US and UK markets, where value, across all capitalisations, continues to underperform. But then new indices and cross border diversification are not attracting such interest to these markets.
Robert Schwob is director of Style Investment Research Associates in London Notes: Euro Zone includes the 11 markets within the initial formation of the euro (Germany, France, The Netherlands, Belgium, Luxembourg, Italy, Ireland, Spain, Portugal, Austria, Finland). The total sample comprises 2,550 traded securities, and returns are the cumulative market-relative total returns (including income) earned from investing in the indicated style portfolios. The analysis is presented in country adjusted and sector adjusted (using the 10 economic groups within the FTSE Actuaries Industry Classification System) format, 'CASA'; ie, after having adjusted for industrial sector distortions and country to country distortions. Size is the primary sort, where large is the top 80% by capitalisation and small the bottom 20%. Value is taken to be the top half, by capitalisation, of each size category, sorted by book value per share to share price, and rebalanced every six months; growth is simplified as the other half within each size category.