Style trends across the euro membership markets have become very clearly defined over the past five years. Large growth companies have been dramatic winners and small value the losers.

Virtually all categories of small company investments have suffered significant underperformance, particularly over the past two years, when even the usually promising small growth sector plummeted. Large growth companies have far outrun large value; and the outperformance looks to have accelerated as the euro fixed rate system approached.

The standardised definition of growth (simply low value) is clearly incomplete, but it does offer a starting point for further research. And it reveals, in sharp relief, the segmentation of the market over the recent past. As in the US and the UK, premium-rated larger capitalisation growth stocks have no doubt benefited from the internationalisation of equity markets, and some aspects of change within the structure of the savings industry. In the case of Europe, these features are reinforced by the prospects of stable currencies, low inflation, low interest rates and, hopefully, stable economies.

Robert Schwab is director of Style Investment Research Associates in London

The euro-zone includes the 11 markets within the initial formation of the euro. The total sample comprises 1,150 traded securities, and returns are the cumulative market-relative total returns (including income) earned from investing in the indicated style portfolios. The analysis is presented in country adjusted and sector adjusted format (CASA); ie, after having adjusted for industrial sector distortions and country to country distortions. Size is the primary sort, where large is the top 80% by capitalisation and small the bottom 20%. Value is taken to be the top half, by capitalisation, of each size category, sorted by book value per share to share price, and rebalanced every six months. Growth is simplified as the other half within each size category.

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