24 Jan 2017

More of the Same: European Mid-Caps Deliver Returns Way Above Large Caps

This is the European equity market as you can view it through Sismo. Each tile is a stock and right here you have 800 of them, including all Stoxx 600 constituents.

The closer you get to the center of the chart, the higher you rank in 5-year return at 31 Dec. 2016.

Purple-color indicates low volatility. Orange is for high volatility stocks and yellow somewhere near average. So best and worst performers (in the center and the periphery of the chart) have something in common: they all rank above average in volatility while low volatility stocks occupy the middle ground.

Now what about size? We’ve highlighted with white borders all stocks with market value above €10 billion at 31 Dec. 2011. Not exactly a random distribution! All large capitalization stocks are neatly placed in the periphery with a striking absence in the central area. Actually none of them ranks among the top 15% performers.

Striking, but actually nothing new here.

The chart below is displayed with the Alpha function of Sismo. It outlines the return of an equal-weight portfolio of the above European stocks invested 5 years ago in all stocks excluding the white-bordered stocks that then had a market capitalization over €10 billion. It shows a long and regular upward pattern, with a stunning 175% return after 5 years while the Stoxx Europe 600 delivers a meager 75% and the large cap index Stoxx Europe 50 a miserable 50%….

Of course this won’t tell how long the small and mid-cap outperformance will persist on the European equity market but the upward regular pattern is remarkable and provides food for thoughts, at the very least.