The Euro-zone markets have been particularly volatile over the past several months and fell by approximately 1.5% during September.
Last month’s style return pattern shows a strong reversal within the larger companies sector. Value stocks fell as growth stocks gained. Within the smaller companies sector, however, there does not appear to have been a noticeable shift at all. Over the three-month horizon, the reward patterns still shows convincing outperformance for the entire sector, with small value stocks being the strongest sub-style.
Although the three-month horizon is still consistent with economic optimism and the belief that economic cyclicals and smaller companies will benefit from resurgent activity, the more immediate data casts a shadow of doubt. Larger growth companies typically outperform as markets scale new heights, foreign investors promote liquid familiar brands and ratings become pushed successively higher. But Large growth also outperforms during much less auspicious circumstances. As bear markets develop and economic concerns threaten value securities (they are generally considered weaker – that is why they are priced at a discount to book value or earnings), it is the profit generating growth stocks that can take on some of the aspects of an equity safe(r) haven. It may be too soon to jump to this interpretation, and small company performance has yet to react (although it might not). But, given recent market jitters and global market reactions to central bankers’ comments, it is certainly worth bearing in mind.
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 2,800 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, 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.