“Value” investment style as driver behind European market surges


Fund Commentary
1 Mar 2018


​In January, the positive market trend, which had characterised Q4 in 2017, persisted, with the main global equity indexes continuing their surge (MSCI World PR Index: +5.22%; S&P 500 PR: +5.62%; MSCI Europe PR: +1.56% and MSCI Emerging PR Markets: +8.30%).

With regard to the European stock market, the “value” investment style appeared to be the driver behind the market surges (+2.35% MSCI Europe Value), mainly thanks to the performance of cyclical sectors, particularly the automotive, banks and insurance sectors. From a geographical point of view the Eurozone outperformed the pan European region (+3.01% Euro Stoxx 50 PR vs. +1.56% MSCI Europe PR), due to the negative performance of the UK. At the end of January, the MSCI Europe PR almost closed the gap to the Euro Stoxx 50, approaching pre-financial crisis levels.

The Euro currency is still strong, with the pressure on the Dollar increasing. The Euro reached 1.24 against the Dollar at the end of the month. At the same time the Dollar Index fell to 89.

The American stock market was much stronger than the European one for the entire year 2017. This trend continued in January, with the S&P 500 Index posting new historical highs in local currency. The relative strength of the index was remarkable, with the market approaching 2870, indicating again that global markets outperformed European markets.

In January, the Strategic Beta Flex Fund gained +0.37%, in line with a portfolio with a similar net exposure in equities: the long leg of the portfolio was able to generate a good amount of alpha, both in January as well as over the medium term, outperforming its peer group since the summer.

In the short term, the Investment Adviser is maintaining a cautious stance towards equity markets, and is waiting for good entry points in order to raise the portfolio’s net long exposure. Valuations appear to be stretched, with no risk premium for equities visible at this point. The team’s medium term view remains positive: from a macro point of view global growth is still solid and well synchronized across the globe, whereas the problem in the short term could be overvaluations and excessive overbuying conditions.

The views and statements contained herein are those of Sofia SGR in their capacity as Investment Adviser to the Fund as of 09/02/18 and are based on internal research and modelling.