February 12, 2021

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

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In Short

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.
Equity quant models: Cyclicals and Value still with legs but discrimination needed
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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
February 12th, 2021
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