Growth and momentum strategies have offered the best returns in Europe over the past six months but alternative approaches are now entering the fray. Quality screens excelled during the past three months but there were also worrying shifts towards junk stocks. After a year of rising prices, bullish investors are becoming more prepared to overlook red flags in their search for profits. There is an element of greater fool theory at play in these stocks. The question is, when they run out of buyers, do you want to be left holding the bag?
Stockopedia’s 66 guru inspired portfolios were last rebalanced on 16 December, when the FTSE Eurofirst 300 Index was beginning a pre-Christmas bull run (see chart). In three months the index has recorded a 2.7% gain, while the MSCI Europe Small Cap Index did a lot better, rising by 11.4% between December and February.
High quality shares pay off
Leading the list of quality strategies this quarter was the often overlooked R&D Breakthroughs screen, which returned 21.7%. This approach specialises in finding companies that are investing heavily in research and development. As a result it tends to highlight a lot of smaller technology and biotech stocks, although it was Norwegian oil explorer Rocksource (RGT) that returned the largest gain in the quarter, rising 126% following a discovery at the Pil well in the North Sea. The screen also enjoyed a 105% gain at French genome technology company Cellectis (ALCLS).
Another market-beating quality strategy was Stockopedia’s Screen of Screens, which holds shares that are qualifying for the highest number of other GuruModels (see chart). It achieved a 15.3% return during the period and its best performer was Italian railway services business FNM (FNM), which rose by 67.7%. We highlighted FNM last July as a share qualifying for the John Templeton Bargain screen (read that here). While the company may no longer be the bargain it once was, that didn’t stop the the Templeton portfolio from being a strong achiever among the value strategies this quarter, recording a 12.6% gain. It was only beaten by the David Dreman Low PE screen (up 13.3%) and the the impressive 19.1% rise seen on the…
