An unusual performance for Europe's star stocks

AN UNUSUAL PERFORMANCE FOR EUROPE'S STAR STOCKS

Europe's most well-owned stocks have recently been underperforming funds' largest underweight stocks - and the overall market - an unusual trend since stocks are rebounding, according to Morgan Stanley equity strategists.

"Long only funds' conviction overweights have been underperforming their largest underweights as well as the overall market in recent weeks," write the MS strategists.

The underperformance began just ahead of April's tactical market pullback, they say, but notably continued even amid the recent market rebound.

"This is unusual as well-owned stocks tend to outperform in rising markets."

The STOXX 600 SXXP lost about 2% in the first few weeks of April, but since April 19 has risen 5% to a fresh record high.

So what's behind the anomaly?

MS says it might be down to idiosyncratic drivers during earnings season, and the fact that less well-owned bond yield sensitive stocks have led the recent market rebound.

Zooming in, Novo Nordisk NOVO_B holds its spot as the most well-held European stock relative to benchmark, and is up 5% since the beginning of April. Meanwhile ASML ASML is the third largest OW for European funds and second largest for global long only funds, but it has shed 3% since April 2.

Moving into European funds' highest 'conviction overweights' relative to benchmark as of the end of the first quarter are Adyen ADYEN, Capgemini CAP, UniCredit UCG, Ahold Delhaize AD, and CRH CRH.

Adyen shares have lost 16.9% since April 2, Capgemini is down 0.8%. Meanwhile Unicredit is up 3.6% and CRH is up 1.5%.

European banks positioning increased across all funds.

Real Estate remains the most underweighted sector across long-only fund types, and utilities positioning is also low in Europe.

MS's data captures 260 funds and $1.2 trillion of assets under management across global, international and European active real money funds.

(Lucy Raitano)

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