Gavekal Capital: What Factors Are Working In European Stock Selection

Monday, August 18, 2014

What Factors Are Working In European Stock Selection

Every week we regress the performance of all regions and sectors in the MSCI World Index against a variety of fundamental, technical and economic variables. We deconstruct an aggregate into deciles and compare the performance of each decile to a given factor. The goal is to identify factors that have a high level of statistical significance with performance in order to understand performance trends underneath the surface of the equity markets.

For example, in the last week, in Europe performance has been mostly related to two factors: 1) sales growth and 2) 3 month change in sales growth expectations. In the tables below, we show the relationship between each factor and the performance of each decile.

Factor Performance of MSCI Europe vs. Sales Growth

The companies with the best sales growth estimates for 2014 tended to outperform last week, with sales growth explaining 73% of the movement of European stocks.

Factor Performance Europe vs. 3-month Change in Sales Estimates

The companies with the best sales growth revisions also did the best last week, with sales revisions explaining 76% of the movement in European stocks.

Below are the 10 companies in Europe with the best sales growth estimates for 2014.

2014 Sales Growth

Below are the 10 companies with the best revisions to 2014 sales growth.

Percent Revision to 2014 Sales Growth

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
We offer the Gavekal Knowledge Leaders Strategy in multiple products for global investors. For more information about our product offerings please visit http://www.gavekalcapital.com.
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Disclosure

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. An investor cannot invest directly in an index. Hyperlinks may be included in this message that provide direct access to other internet resources, including web sites. While we believe these links are to reliable sources, Gavekal has no control over the accuracy or content of information contained on these sites. Although we make every effort to ensure such links are accurate, up to date and relevant, we have no control over pages maintained by external providers. The views expressed by these external providers on their own web pages or on external sites they link to are not necessarily those of Gavekal.
The information listed on this blog is for example purposes only and should not be construed as the investment Advisor's opinion or investment outlook. As of the most recent quarter end, the named companies may have been held by the investment Advisor. Please review the most recent disclosures. For full information including additional policies and full disclosures on the Advisor, please visit our website gavekalcapital.com.