Graphic: Shifting tides for European equities?
Over the past 10 years through 2021, the MSCI Europe Investable Market index returned an annualized 8.7%, a little more than half the Russell 3000 index’s 16.3%. Moreover, U.S. stocks’ 13.5% standard deviation was lower than their European counterparts by about 200 basis points. So far this year*, though, the MSCI Europe IMI’s -2.1% total return is outperforming the Russell 3000 by about 370 basis points.
Cheaper valuation: Europe’s equity market, after years of underperforming U.S. equities, now trades at a significantly lower valuation. The MSCI Europe IMI’s trailing price-earnings ratio is 18, vs. 26 for the Russell 3000.
Equity market valuations
Lagging growth: Over the past decade, companies in the MSCI Europe IMI index produced annualized sales growth of 0.9%, and earnings growth of 4.3%. During the same span, the Russell 3000’s sales bettered a 4% compounded annual growth rate, while earnings increased by a 6.5% annual clip.
Earnings growth
Index composition: The five largest countries account for three-quarters of the Europe index. The Bank of England recently raised interest rates, and the European Central Bank didn’t rule out an increase in 2022.
MSCI Europe IM index country weights
Less concentrated: While the Russell 3000 has a big concentration in tech stocks, the MSCI Europe IMI’s sector weights are spread more evenly. Less exposure to high-growth tech stocks could fare better in a rising-rate environment.
Index sector breakdowns**
| MSCI Europe Investable Market index | Sector | iShares Russell 3000 ETF |
|---|---|---|
| 16.8% | Industrials | 8.9% |
| 15.4% | Financials | 11.3% |
| 13.8% | Health care | 13.4% |
| 11.6% | Consumer staples | 5.4% |
| 11.4% | Consumer discretionary | 12.4% |
| 8.7% | Information technology | 28.2% |
| 7.8% | Materials | 2.4% |
| 4.2% | Energy | 2.7% |
| 4.1% | Utilities | 2.4% |
| 3.8% | Communication services | 9.2% |
| 2.5% | Real estate | 3.6% |
| 0.0% | Other | 0.2% |
*As of Feb. 10. **Data total more than 100% due to rounding. Sources: Bloomberg LP, MSCI Inc.
Sponsored
White Papers
Sponsored Content
Partner Content