Equity sector models and strategy: still OW on Value but turning more constructive on staples

In Short

In the last month, equities were able to advance further thanks to a lingering good macro momentum with central banks reassuring against a bold hawkish change in stance. Furthermore, vaccinations progressed well, and the activity reopening in the euro area (EA) continued.

Highlights:

  • We provide an assessment of European sectors and styles judging from the signals produced by our quant models, further enriched by our qualitative analysis.
  • The bulk of the overweight is maintained in Value sectors, financials and energy, to leverage on economic recovery, higher 10-year yields and CPI.
  • We increased even further the exposure to households – bottoming earnings revisions and peaking confidence indicators – financing it with a higher underweight in Media (poor revisions and quant models).
  • Regarding specific sectors, we overweight banks, div. financials, energy, materials, household & personal products, software and tech hardware and underweight cons. services, media, real estate, utilities and telecoms.
  • Our quantitative analysis coming from Machine Learning (ML) and classic approaches shows undervaluation for energy, auto and software and overvaluation for comm. & prof. services, pharma, telecoms, media, materials, food, cons. services and retailing.
  • Among European styles, undervaluation is indicated for defensives, momentum, small cap and min. volatility. Expensive are low leverage, large cap and cyclicals.

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Vincent Chaigneau

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