Banks lead Stoxx 600 outperformance as value hunters circle | Insights | Bloomberg Professional Services

Bloomberg Market Specialist Adam Lynne contributed to this article. The original version appeared first on the Bloomberg Terminal.

Background

Despite a challenging environment, European financials were among the value plays that helped the Stoxx 600 Europe Index (SXXP) outperform in the past six months. The best value banks have rallied after an early March sell-off, and analysts see further upside.

The SXXP gained 20.5% in the past six months, with value stocks leading the charge. By contrast, the S&P 500 returned 15.5% during the same period. The first quintile of SXXP members, ranked by value, includes 40 financials that collectively returned nearly 32%. That could make value leaders worth a second look.

The issue

Value was the top-performing long-only factor in the SXXP in the past 6 months, gaining 27.2%. Dividend yield also outperformed the benchmark at 24.3%. Meanwhile, SXXP value stocks outperformed first-quintile value stocks in the U.S. benchmark by almost 20 percentage points.

Financials are driving this performance, and European first-quintile value financials outpaced the region’s value leaders and the sector benchmark with a gain of almost 32%. France’s Societe Generale SA, which saw a leap in top-earning bankers from increased volatility, was among the European financial stocks with the strongest composite value scores.

Another notable performer was Britain’s Barclays Plc, despite the firm cutting about 100 investment banking roles after pressure from slowing deal-making and rising interest rates. Switzerland’s UBS Group AG, which is on track to become a wealth management “powerhouse,” according to JPMorgan analysts, was also among those with top composite value scores.

Analysts expect returns of 24% in the year ahead for the list of first-quintile SXXP financials, which have a collective dividend yield of 6.2%. Banks, meanwhile, have expected returns of 29% and dividend yields of 7%. The financial sector has high value and dividend exposure versus the SXXP. Banks have much higher exposures to value, while financial services are more growth-oriented.

Tracking

Run SXFINP Index TLTS to find factor tilts of European financials.

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