Eurozone value stocks are performing this year in a way not seen since 2016. Over the first eight months of the year, they actually achieved better returns than the broad market. Yet investors in funds that invest in such equities will have few reasons to celebrate.
As elsewhere in the world, value stocks have performed relatively well within the Eurozone this year. Over the period from January to August, the MSCI EMU Value index posted a return of -13.74 percent, a more limited loss than the broader MSCI EMU index, which declined 17.11 percent. This is a rather exceptional performance, as we have to go back to the year 2016 for the last calendar year in which the value style showed an outperformance.
Nevertheless, investors in Eurozone who value style equity funds have little reason to cheer. First of all: the Eurozone is one of the weakest performing regions globally this year. By comparison, the MSCI Europe index recorded a loss of 11.84 percent, while the MSCI World was down 7.02 percent.
The picture is not different for value stocks, with the value variants of the aforementioned indices also showing better returns than the MSCI EMU Value index. The loss for the MSCI Europe Value index is less than half, at -6.07 percent, while the MSCI World Value index even registers a slight plus of 0.68 percent.
Inflation weighs on performance
The mediocre performance is easy to explain. Rising inflation and the resulting interest rate increases by central banks have put pressure on equity markets worldwide. Russia’s invasion of Ukraine and rising commodity prices have only worsened the picture. Eurozone countries are bearing the brunt.
Another reason for disappointment for investors in Eurozone equity funds is the underperformance of these products in the current year. The Morningstar Eurozone Large-Cap Equity category has a total of 114 funds with a value style portfolio. Only 30 funds managed to beat the MSCI EMU Value index at the end of August. The underperformance of the managers is therefore in many cases a double disappointment.
NN (L) Euro High Dividend
This week’s Top 5 lists the five best-performing funds, based on the distribution fee-free share classes available in the Netherlands and Belgium, in the Morningstar Eurozone Large-Cap Equity category based on their performance in 2022 through the end of August. To qualify for this ranking, the portfolios of these funds also had to have a value character according to the Morningstar Style Box.
The first place is for NN (L) Euro High Dividend. The fund is led by the experienced Nicolas Simar, who has been involved with the fund since 1999 and is also head of the so-called Equity Value boutique of the Hague fund house. Since June 2018, he has been supported in this task by the equally experienced co-manager Robert Davis.
Their approach focuses on identifying companies that pay an attractive and sustainable dividend, which gives the portfolio a value character. Nevertheless, they do not shy away from stocks with a growth profile, as evidenced by positions in LVMH and ASML, both of which are among the top three holdings in the portfolio. Among the best-performing stocks this year are oil companies Shell and TotalEnergies, as well as Deutsche Telekom and Deutsche Boerse.
Lazard Alpha Euro SR
Lazard Alpha Euro SRI is a close second. Régis Bégué is the lead manager of this fund and boasts nearly three decades of experience in the financial industry, including 17 years as head of equities at French Lazard. His investment style is opportunistic and he seeks to outperform based on identifying specific themes, such as capitalising on economic cycles or betting on certain styles including growth and value.
It also integrates sustainability by applying a so-called best-in-class policy based on ESG criteria. Although the portfolio has a value style for some time now, Bégué does mix stocks with different styles. And in his portfolio we also find, for example, ASML and LVMH among the top positions. The three best-performing stocks in the portfolio this year are AtraZeneca and again Deutsche Telekom and TotalEnergies.
Invesco Euro Equity is on the lowest step of the podium. Oliver Collin and Steve Smith make up the management duo that runs the fund. Although Collin’s experience in the asset management world dates back to 2000, this was not related to managing portfolios until 2015. Since 2016 he has been managing this fund and from the end of 2020 he will do so together with Smith. Their investment philosophy focuses on long-term investments with a strong focus on equity valuations. Growth stocks that are often priced higher are therefore not included in their portfolio. Although Deutsche Telekom and TotalEnergies are also in the portfolio, CaixaBank, Galp Energia and AstraZeneca are the best performers so far in 2022.
Top 5 YTD, as per NL fund classification:
Top 5 YTD, as per BE fund classification:
Ronald van Genderen is a senior manager research analyst at Morningstar. Morningstar analyses and evaluates investment funds on the basis of quantitative and qualitative research. Morningstar is one of Investment Officer’s knowledge partners and ranks five investment funds or providers each week.
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