The Euro Stoxx 50 is up 18% year-to-date. For many that may be an excellent return for a whole year let alone for just the first four months.

But what’s even more interesting is that there are investors who have achieved a return better than that of the market due to their stock picking skills.

Over the years a buy-and-hold strategy in a well-diversified equity portfolio has generated decent returns for shareholders. There is no arguing about that. If a shareholder suffered losses it can only be the result of a portfolio which was not well-diversified by taking too much risk on individual constituents or else failing in the stock picking process.

 Despite the positive performance of equity markets, if you had to compare your portfolio performance to the markets’ top performers, I’m sure there were opportunities which were overlooked and in hindsight would have contributed nicely towards your performance.

For those investors adopting a top-down approach to investing, it is very important to study what happened in markets over the past to understand how different sectors reacted to different situations. It is only by learning from your own mistakes and the mistakes of others that your portfolio performance will improve.

As Albert Einstein well put it, ‘Insanity is doing the same thing over and over again and expecting different results.’

Moving on from the psychological aspect to the decision making part, it is a fact that markets have come up nicely and it would be hard to repeat the same kind of performance till year end with a static portfolio. Going forward additional performance will be driven by tactical positions.

Do not worry about drifting away from your strategic asset allocation in the short term to take advantage of current market situations as long as you align the portfolio back to meet your long term goals.  

Historic data shows that post QE announcements, the financial services, autos and parts, banks and construction industries are the top four industries which gained the most.

Looking at the constituents within the Euro Stoxx 50, three of the five best performers so far this year are in the financial sector. If you look at the Euro Stoxx 600, two of the five best performers (Renault and Peugeot) are in the auto sector.

I am of the view that the rally in the financial sector and the auto sector still has legs in Europe as quantitative easing keeps up the pace.

Below are the top 5 performing stocks in the Euro Stoxx 50 since the start of the year.

Airbus Group NV (up 56% year-to-date)

Airbus Group NV manufactures airplanes and military equipment.  The Company produces commercial aircraft including the Airbus, military fighter aircraft, military and commercial helicopters, missiles, satellites, and telecommunications and defense systems, and offers military and commercial aircraft conversion and maintenance services.

Societe Generale SA (up 32% year-to-date)

Societe Generale SA attracts deposits and offers commercial, retail, investment, and private banking services.  The Bank offers consumer credit, vehicle lease financing, information technology equipment leasing, life and non-life insurance, custodian services, trade and project financing, currency exchange, treasury services, and financial and commodities futures brokerage services.

BASF SE (up 31% year-to-date)

BASF SE is a chemical company. The Company operates in six segments: Chemicals, Plastics, Performance Products, Functional Solutions, Agricultural Solutions and Oil & Gas. BASF offers products for the chemical, automotive, construction, agriculture, oil, plastics, electrical / electronics, furniture and paper industries, and provides a range of system solutions and services.

ING GROEP NV-CVA (up 30% year-to-date)

ING Groep N.V. offers financial services to individuals, corporations, and other institutions.  The Company offers corporate, investment, and private banking services, asset and portfolio management, treasury services, and insurance.  ING Groep has offices throughout the world.

Intesa San Paolo (up 28% year-to-date)

Intesa Sanpaolo attracts deposits and offers banking and financial services. The Bank offers consumer credit, asset management, Internet banking, merchant banking, securities brokerage, factoring, and lease financing services, and manages mutual funds.  Intesa Sanpaolo operates branches throughout Italy, and offices elsewhere in Europe, Asia, and the United States. 

This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.  

 

 

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