The ‘Eurostars’, including Novo Nordisk and ASML, have outperformed the US ‘Magnificent 7’ since 2020, showcasing diverse sector strengths and superior risk-adjusted returns, a recent research shows.
Europe also boasts its own collection of high-performing stocks, referred to as the Eurostars – a term coined by Jordy Hermanns, Portfolio Manager at Aegon Asset Management.
The Eurostars comprise Novo Nordisk, ASML, LVMH, Ferrari, Adyen, Schneider Electric, and Hermès. Remarkably, since the beginning of 2020, this elite group of European stocks has not only matched but outperformed the robust performance of the US-based Magnificent 7.
“These companies have increased their weight and influence in benchmark indices. This winner-takes-all paradigm has had a significant impact on the global economy and financial markets,” Hermanns commented in a research note.
Since the onset of 2020, Eurostars have delivered a phenomenal total return of 224%, translating to an annualised return of 30%.
This performance mirrors that of the Magnificent 7, which includes tech titans like Nvidia, Apple, Microsoft, Alphabet, Meta Platforms, Amazon, and Tesla.
However, Hermanns highlighted that the seven European leaders exhibited a lower realised volatility of 23% compared to the Magnificent 7’s 30%, underscoring their superior risk-adjusted returns.
Diverse sectoral representation and weighting
Unlike the tech-centric Magnificent 7, Aegon Asset Management underscores that the Eurostars are spread across various sectors, including healthcare, luxury goods, automotive, and industrial technology.
Hermanns remarked that “this diverse composition not only makes the Eurostars a formidable counterpart to the US’s tech giants but also a critical component of any well-diversified global investment portfolio”.
The digital revolution has notably benefited ASML and Adyen. Novo Nordisk’s growth has been fuelled by rising demand for healthcare services, particularly obesity treatments. Luxury brands such as LVMH and Hermès have thrived thanks to increasing household wealth, especially in Asia. Meanwhile, Schneider Electric has capitalised on the global energy transition, making it a key player in the sector.
Hermanns highlighted that “these four strong trends have resulted in significant growth for the Eurostars, leading to excellent shareholder returns”.
The sectoral weighting of the Eurostars differs significantly from the Magnificent 7.
While the Magnificent 7 are predominantly technology-driven, including companies like Google and Meta under the communications sector and Tesla in consumer discretionary, the Eurostars reflect a broader economic spectrum.
Novo Nordisk, a healthcare giant, commands a 33% share of the Eurostars basket. ASML, representing IT, holds a 21% weight, much lower than the 61% IT representation in the Magnificent 7.
Luxury brands LVMH and Hermès, along with Ferrari, fall under consumer discretionary, making up 37% of the Eurostars, a stark contrast to the 16% weight of this sector in the Magnificent 7.
“The diverse nature of the Eurostars, spanning healthcare, technology, luxury goods, and industrial sectors, underscores their multifaceted strength,” Hermanns adds.
Market capitalisation disparities
A key distinction between the Eurostars and the Magnificent 7 is market capitalisation. The combined market capitalisation of the Magnificent 7 currently exceeds $16 trillion (€14.7 trillion).
“Apple and Microsoft have market capitalisations exceeding $3 trillion (€2.8 trillion), while Tesla, valued at around $600 billion (€554 billion), is the only member below the $1 trillion (€0.9 trillion) mark,” Aegon Asset Management observed.
In stark contrast, none of the Eurostars exceeds $1 trillion, and their combined market capitalisation is just below $2 trillion (€1.85 trillion). According to Hermanns, this contrast highlights that size isn’t the sole determinant of success in markets, as the Eurostars have shown exceptional performance regardless of their smaller market caps.
According to Hermanns, this contrast underscores that size isn’t the sole determinant of success in markets, as the Eurostars have shown exceptional performance regardless of their smaller market caps.
In conclusion, while acknowledging the strong performance and dominance of the Magnificent 7, Aegon Asset Management emphasises the importance of celebrating the Eurostars.
These shining stars of Europe not only compete but also thrive in the global arena, deserving recognition for their stellar performance and significant contributions to the broader market returns.