The most profitable supersector measured by the return on equity (ROE) is Media with a ROE of 43.9%. The three largest companies in the media supersector are RELX, Wolters Kluwer, and Publicis Groupe. In terms of earnings growth over the past year the winner has been energy with earnings per share up 225%. Europe’s three largest energy companies are by far Shell, BP, and TotalEnergies.
The most expensive supersector measured by the 12-month forward P/E ratio is Consumer Products and Services and the largest companies in this supersector are LVMH, L’Oreal, and Richemont. A significant contributor to Europe’s outperformance since October 2022 has been luxury stocks which are part of this supersector as investors have looked for good bets on the Chinese reopening post its zero-Covid policy. Interested readers can read our equity note from 17 February on the global luxury industry which is dominated by European companies.
The most cheapest supersector measured by the 12-month forward P/E ratio is Automobiles and Parts and the largest companies in this supersector are Mercedes-Benz, Stellantis, and BMW.
A more diversified and cheaper equity market
Another interesting observation on European equities is the huge difference in GICS sector weights between the STOXX 600 and S&P 500. The biggest difference is in Information Technology with a 19%-points difference. US equities also have a higher exposure to Communication Services which includes media related companies such as Meta. European equities have a higher exposure to Financials, Industrials, Consumer Staples, and Materials (mining and chemical) which are all tangible-driven sectors. If we are right about reshoring, the geopolitical trajectory of the world splitting into two value systems, the green transformation and the tight supplies of key metals such as copper, the need for massive infrastructure spending then European equities should in theory outperform US equities. What we also observe is that European equity markets are more diversified and using the Herfindahl-Hirschman approach of comparing sum of squared weights we can conclude that US equities are 19% more concentrated on sector level than European equities. Being overweight US equities is essentially a significant active bet on technology companies to continue outperforming.