Quant signals for EU equity sectors and styles

The amount of available information has never been so large and the effort required to analyze all the investment opportunities entails prohibitive costs. As a result, it has become a common practice to apply first a top-down approach in determining the most promising regions or areas in a given market.

Highlights:

  • We introduce our proprietary equity valuation tool which provides indications of over- or undervaluation for different sectors and styles of European equities.
  • The regression-based models use macro and financial variables to provide fair value estimates of the ratio between the MSCI Europe Sector/Style index and the broad MSCI Europe index.
  • Each model is back-tested to ensure the viability of the derived buy/sell strategies. We analyzed the relative performance of each sector/style at different levels of over and undervaluation and over different time spans (1, 3, 6 and 12 months). Generally, the models have the best performance in the 6 to 12 month horizon.
  • Currently, financials, telecommunications, energy and utilities look undervalued while industrials, materials and IT appear overvalued. Among the European equity styles, undervaluation is indicated for value, small cap and large cap value while growth, cyclicals, low leverage and large cap stocks look too expensive.

Read the full publication below.

QUANT SIGNALS FOR
EU EQUITY SECTORS
AND STYLES

RELATED INSIGHTS

COVID-19 FACTS & FIGURES
Pfizer and BioNTech candidate Covid-19 vaccine showed to be 95% effective in early analysis, an even better result compared to data released last week. Moderna candidate Covid-19 vaccine showed to be 94.5% effective in early trials involving 30,000 people. Switzerland announced ICU beds reached full capacity and no extra units are available. Oxford and AstraZeneca Covid-19 vaccine test results are expected by late December.
EUROPEAN DEFAULTS LIKELY TO STAY LOW
Since March, credit markets have retraced a large part of the Covid-related spread widening, alongside rebounding risk sentiment. Although the rally has been substantial, it has remained defensive with IG outperforming HY on a beta- adjusted basis. The main reason in our view have been concerns about rising defaults.
US: SPLIT GOVERNMENT NOT TOOTHLESS ON GROWTH
Narrow margins in several key swing states sent Democratic candidate Joe Biden to the White House. However, Republicans are more likely than not to keep the majority in the Senate, with voters in Georgia having their final say on two decisive seats on Jan. 5.