* Since late January we have seen a break in factor leadership, with a strong
rotation out of the Profitability factor (-3.2%) and in favour of Expected
Growth (+2.1%). So although a strong equity rally has been maintained
since October, the composition of this rally has changed materially. We think
that some aspects of this recent factor composition can be maintained.
* The Value factor has been absent from the recent rally. Clients have been
asking frequently when Value can start to participate, but we would not
expect a value-led market recovery.
* We remain negative on high Dividend Yield. It is the worst performing factor
in Europe year to date, but we have concerns that pay-out ratios remain
elevated and that too much capital has flowed somewhat indiscriminately
into such companies.
* We believe this rotation can continue, and we suggest looking at high
Expected Growth stocks that have lagged behind the broader market since
mid-January. We would discriminate between high Growth and high Risk.
* These factor trends are evident at the stock level, so we can be more
precise at the implications of this. We are taking some profit in the Autos
sector (but remain Overweight) and allocating it to Airlines. We are also
reallocating capital within the Technology and Chemical sectors.
* In our portfolio we are removing BMW, CRH and ARM Holdings and adding
Ryanair, Akzo Nobel, Volvo and ASML.