Investing In Europe? Might Want To Include Some Knowledge Leaders. Just Sayin’. by Jennifer Thomson – Gavekal Capital Blog
Year-to-date (on an equal-weighted basis), the average stock in our DM EMEA universe is down more than 3%–led by the usual suspects (Italy, Portugal, Spain, and Ireland), of course. [For reference, DM Asia and DM Americas stocks are up for the year so far–2.85% and 7.62%, respectively.]
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Investing In Europe
Peripherals’ underperformance is followed closely by none other than the U.K. (down almost 5% ytd), where equity performance has undoubtedly been influenced by uncertainty related to next week’s vote to stay or to leave the European Union.
Among U.K. stocks, the only real bright spots have been in the Materials and, to a much lesser extent, Energy and Consumer Staples sectors. Financials have fallen nearly 14% year-to-date:
On the positive side, Norwegian equities have offered some relief to investors thus far, as strong gains in Information Technology and Consumer Staples stocks (42% and 36%, respectively) have overwhelmed ~8-11% declines among the country’s Consumer Discretionary and Materials shares.
Investing In Europe
To be sure, those tasked with finding compelling investment ideas among European companies don’t have the easiest job, I know! Making sense of how political and economic influences impact not just the companies themselves but the stocks of those companies is no walk in the proverbial park. In our process, however, we find that focusing on the Knowledge Leaders provides a distinct advantage. While the average DM EMEA stock is down more than 3% so far this year (as shown above), the knowledge-intensive companies that pass our screen have only fallen, on average, about 57bps:
Of those Knowledge Leaders, those selected for the model DM EMEA portfolio have actually risen about 3.7% since the beginning of 2016:
For more on how the Knowledge Effect performs, see here.