European equities were again very strong during December, rising by 13.6% in euro and by 13.1% against the strengthening US dollar. Over the past quarter equities rose by 27.5% in euro and by 20% in US dollar terms.
Against this background of continuing and strengthening optimism, it is no surprise that the large growth versus small value performance polarity has persisted through December. As in other major markets, notably the US, UK and Japan, investors’ interest in the galloping information technology sector has spilled over to other areas of the global marketplace. And as enthusiasm has spread, liquidity, brand and familiarity have again been the key elements of the recent advance.
The most prominent feature of the past several months has clearly been the rapid collapse of the smaller company sector; but it is also worthwhile looking more deeply within the figures themselves. A detailed analysis of the ingredient characteristics of the markets’ performance reveals that the style reward patterns are not entirely consistent from industrial sector to industrial sector. Despite the recent decline, on a 12-month view, value is still up against the total market in a number of large European sectors (finance and insurance, resources and utilities, information technology, and services). And, as investors move gradually (in some cases more quickly that that) towards the management of European portfolios on a sector basis, these distinguishing characteristics are becoming progressively more important.
Robert Schwob is director of Style Research 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.