European Factor Highlights

We recently updated our S&P Europe 350 Factor Dashboard, which shows the factor exposures of a number of our European indices (interested parties can sign up here).  Here are some highlights from our year-end report.

Little separated the returns to European core factor indices, but all outperformed

While the extremely low stock-level dispersion contributed to a narrow range of core factor returns – only 8% separated the best from the worst – each of Enhanced Value, Momentum, Quality and Low Volatility outperformed the benchmark S&P Europe 350’s 10.75% total return in 2017.  This was the first calendar year since 2013 that every European core factor index beat the benchmark.  Higher exposures to smaller companies were beneficial to these indices as the S&P Europe 350 Equal Weight Index also beat the S&P Europe 350.  These benefits were in stark contrast to the U.S., where greater exposure to small size, as well as to value, proved a hindrance in 2017.

Exhibit 1: Performance of European Core Factors

Investors got what they paid for in European Dividend Strategies in Q4

Despite concerns earlier in the year that dividend strategies were becoming overvalued, the most expensive European dividend strategy at the end of the third quarter posted the highest return in the final three months of the year as the S&P Europe 350 Dividend Aristocrats rose 0.81%.  Although the S&P Europe 350 Quality was the worst performing index in our report since September, dividend strategies benefitted from greater exposure to higher quality stocks in the fourth quarter; total returns increased monotonically with quality scores.

The 11.04% annual gain in the S&P Euro High Yield Dividend Aristocrats showed the potential benefits of selecting high-yielding stocks with a track record of raising (or maintaining) dividends for at least a decade; the index topped the charts among European equity dividend strategies.


The posts on this blog are opinions, not advice. Please read our disclaimers.

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