In the aftermath of the financial crisis, the idea of buying shares in companies across Continental Europe may have seemed unduly risky, and perhaps even laughable to many UK investors. But while plenty of concerns remain about the region’s ongoing economic malaise, the performance of European stocks has been impressive during 2013. Earlier this year Stockopedia unleashed its 60 strong GuruModel investing strategies on Europe and so far many of them have produced some stunning results.
All year, commentators and analysts have touted Europe as a potential value opportunity for investors prepared to bet that politicians can sort out the financial mess and corporate earnings can grow sustainably. On an (admittedly blunt) comparison of indices, the 9.8% gain seen by the FTSE Eurofirst 300 this year is broadly in line with the FTSE 100 although no match for the 21.7% rise on the S&P 500. Like the UK, however, European small and mid caps have performed extremely well, with the MSCI Europe Small Cap Index up by 35.3% in the year to the end of November.
What worked in Europe
In the seven months since we began tracking European stocks, the Stockopedia All Cap Composite has risen by 14.8% and, as we found in our UK Strategy Review, momentum strategies have made the greatest impact on that performance. Topping the list are two momentum approaches that have each managed an impressive 36% gain over six months: the Josef Lakonishok and Richard Driehaus screens (returns are pre-costs with portfolios rebalanced quarterly). Lakonishok’s focus on finding undervalued shares that investors are starting to recognise plainly suits markets that are themselves reviving and this is reflected in the fact that more than 300 companies currently qualify for that screen. By contrast, Driehaus’s momentum formula has a quality component in it, blending a recent history of earnings growth with price strength and broker upgrades.
Despite the two strategies delivering a similar performance since May, there is very little overlap between their current portfolios. During the past three months, the Lakonishok screen has benefitted from positions in German technology company Basler (BSL) and Italian food group Valsoia (VLS) while the Driehaus screen has been lifted by shares such as French IT company Solucom (LCO).
Growth strategies have also been big winners in Europe during 2013.…
