Signs of Life in the Eurozone

Friday, July 24th, 2020

Rally in Financials is thematically important for the region

Our charts for Eurozone equities relative to the rest of the world have suddenly gone vertical. The change started in late June and the charts have improved in each of the last four weeks. It is now supported by improving lead indicators in cyclical sectors, like Materials and Industrials, and deep value sectors like Financials. The latter are key to the rehabilitation theme. Without them, a Eurozone rally will be anaemic; with them it could be surprisingly powerful.

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Rotation in the US

Friday, July 10th, 2020

US sector signals suggest a reappraisal during results season

Our US equity sector model has been unusually quiet of late, but we are picking up signals that this is about to change. The lead indicator for the scale of potential changes is close to a one-year high and the level of conviction attached to this reading is at a two-year high. We expect the rotation to start at the bottom and work upwards. Energy and Materials look interesting, while Staples, Utilities and, possibly, Healthcare look challenged.

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Re-Configuring the S&P Sectors

Friday, May 29th, 2020

Time to Start Thinking About It

Well-designed sectors make portfolio management easier, but that means that the definitions need to be reviewed and refreshed on a regular basis. We believe we have arrived at that moment in the US. We propose splitting the Tech sector into two, combining Materials with Industrials and Energy with Utilities. We find that it is easier to generate systematic outperformance using the new definitions.

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The Meaning of Boris

Friday, January 10th, 2020

Three half-full glasses and an alternative

The result of the UK election has made the country more attractive to international equity investors, but not to domestic investors, except in the sense that equities everywhere have become more attractive relative to fixed income. We do have substantial overweight positions in cyclical sectors like Industrials, but these are funded by underweights in other cyclical sectors like Materials. We expect to upgrade Small Caps to overweight in the near future, but we have already done so in Japan and the Eurozone. It’s all a bit underwhelming. But our models are clear that if you think that the UK will prosper outside the EU, you should buy Ireland.

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Is Energy Un-Investable?

Thursday, November 7th, 2019

Sector at multi-year lows in equity and fixed income models

Nobody likes the Energy sector. On a global basis the current sell-off is as bad as all the other major declines, apart from 2014. The difference is that oil prices are much more stable now than they were then. The medium-term challenges (ESG agenda, electric cars, balance sheet distress) are all well-known, but we would be really surprised if the sector wasn’t rated overweight again within the next two years – any maybe sooner.

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Six Sector Ideas

Thursday, September 26th, 2019

Where to look in advance of the Q3 results season

The macro picture is confused. Our last note argued that we are in the late late-cycle for equities, but we could go on like this for months and there are no new developments to prove or disprove this view. So, our focus shifts to sector selection. We highlight six sector ideas – one from each region we cover – where we think there is potential for a major upgrade or downgrade in the near future.

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Hyper-stability is destabilizing

Thursday, September 12th, 2019

Are we in a quant crash and what does it mean?

This week has seen a sudden upsurge in factor rotation at the individual stock level in the US. It may be too soon to call this a quant crash and we would be wary of attributing this to some macro-economic story, like a change in Treasury yields. The best explanation may be that it was so darn quiet immediately beforehand – something which our equity sector models show very clearly.

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Eurozone Rising

Thursday, July 11th, 2019

US investors need to take another look

The Eurozone will soon be the top-ranked equity region in both our euro and dollar-denominated asset allocation models. We think this will prompt US investors to have another look across the Atlantic. We think there are three sectors where they will concentrate their buying to start with: Consumer Goods; Industrials and Utilities. All three sectors are capable of outperforming their US counterpart and the US index as a whole.

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Opportunity in the Detail

Thursday, June 13th, 2019

Listen to the market. It has lots of ideas.

Even if the macro outlook is uncertain, there are still several important messages that can be gleaned from the detail of our equity sector models. The three we highlight concern US Energy, Global Utilities and European Consumer Goods. Our models can never prove any investment thesis, but they can suggest interesting lines of enquiry.

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Barbell

Thursday, April 4th, 2019

Overweight defensives and high growth. Ignore the rest.

Equity investors have decided to revisit a strategy first utilised during the secular stagnation debate of 2015 and early 2016. In the US and Europe, they are buying low beta defensives in case there is a recession and paying a premium for stocks with strong secular growth, in case there isn’t. There is very little active weight in the rest of their portfolios. It’s a Barbell strategy, which works while we wait for clarity from the US results season.

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