Investments in European equities have been the top performers over the winter months – against the backdrop of the cost-of-living and winter fuel crisis – according to leading industry statistics from FE fundinfo.
The news comes following a turbulent few of years for markets that have seen a great deal of uncertainty off the back of the fallout from Brexit and the war in Ukraine as well as this week’s announcement that European equities and particularly banking stocks have suffered after UBS agreed an ‘emergency rescue’ takeover of Credit Suisse.
Best performing sectors
The statistics – pulled from FE Analytics – show that the top three performing sectors – rated cumulatively over the past three months (December 2022 – February 2023) – were European Smaller Companies (9.16%), Europe Excluding UK (8.18%) and Europe including UK (6.45%).
The performance of European equities is particularly surprising given the outlook back in the autumn. Back then, there was a widely held view that recession was likely and European equities were expected to struggle due to the large proportion of cyclical stocks in the region.
The Bank of America Global Fund Manager Survey – that tracks manager attitudes to different asset classes, regions and specific issues every month – had said that the high price of energy (in particular gas) had meant that there was the general view that Europe was about to enter recession. However, these latest stats suggest that there is growing confidence when it comes to investing in the region.
|Sector||Three-month cumulative performance to last month end overall (Dec 22 – Feb 23)|
|IA European Smaller Companies||9.16%|
|IA Europe Excluding UK||8.18%|
|IA Europe Including UK||6.45%|
What’s driving performance within Europe
Looking further into the detail of where investment within Europe has been has shown that the top three performing indices for investment over the course of the winter were Europe Cyclical Sectors (10.00%), Europe Small Cap (9.05%) and Europe Mid Cap (8.93%).
This is surprising as cyclical stocks are units of ownership in these companies whose profits depend on the business cycle. The price of cyclical stocks, therefore, usually rises in periods of economic boom. But their value usually falls during downturns, in line with sales and profits.
|Indices||Three-month cumulative performance to last month end overall (Dec 22 – Feb 23)|
|MSCI Europe Cyclical Sectors||10.00%|
|MSCI Europe Small Cap||9.05%|
|MSCI Europe Mid Cap||8.93%|
Worst performing sectors
In contract, the three worst performing sectors have seen investments in the Gilt market continue to struggle – following on from last year’s Liability Driven Investment (LDI) crisis which saw a sharp fall in UK government bonds because of fears the UK Government would be unable to fund its Growth Plan 2022 – as well as investments in the Indian Subcontinent.
The three worst performing sectors were: UK Gilts (-5.38%), UK Index Linked Gilts (-7.93%) and India/Indian Subcontinent (-9.56%).
|Sectors||Three-month cumulative performance to last month end overall (Dec 22 – Feb 23)|
|IA UK Gilts||-5.38%|
|IA UK Index Linked Gilts||-7.93%|
|IA India/Indian Subcontinent||-9.56%|
Charles Younes, Research Manager, FE fundinfo, said:
“A warmer winter prevented the widely expected energy crisis in Europe from materialising. As a result, economic activity in the region has exceeded expectations and Europe has avoided recession. Smaller companies and cyclical stocks have been the biggest beneficiaries of the better economic performance.
“The rapid reopening of China should prove beneficial for European exports, however, there are still several risks for European equities. Inflation remains stubbornly high and the European Central Bank has committed to higher interest rates in its efforts to bring it back to target, and the actions of the US Federal Reserve remains the key driver of global markets.”
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