Equity quant models: Cyclicals and Value still with legs but discrimination needed

En bref

At the end of 2019 we introduced our proprietary equity valuation tool “Quant signals for EU equity sectors and styles” to yield indications of over- or undervaluation for different sectors and styles of European equities.

Highlights:

  • Our proprietary equity valuation tool, based on quant models, provides indications of over- or undervaluation for European sectors and styles, further enriched by our qualitative analysis.
  • Banks, insurance, energy, software and tech hardware look undervalued while retail, commercial & professional services, telecoms, utilities, materials and semiconductors appear overvalued.
  • Among European styles, undervaluation is indicated for defensive, large cap and min volatility. Low leverage and cyclicals look expensive, needing more sector selectivity.
  • Incorporating also non-quant signals coming from our qualitative analyses, we continue to recommend having a tilt to cyclicals and value. Overweight positions are financials, energy, materials, and software. Underweight media, telecoms, transportation, and household & personal products. We bring semiconductors and food retail to neutral due to stretched quant model results.
  • Since the end of December, the rotation into Value has not materialized yet (performed in line with Growth – probably due to activity restrictions) and only the cyclicals outperformed. In our view, rotation is only postponed, and we stick to Value which – together with commodity sectors – also represents a hedge against surprise spike in bond yields.

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Equity quant models: Cyclicals and Value still with legs but discrimination needed
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