WHY YIELD STOCKS ARE A PARTICULARLY GOOD BET IN 2011

Since markets started to rebound on March 6 2009, cyclicals like financials and industrials have done well. During the first months of the rebound, i.e. up to the end of 2009, yield stocks saw an unwarranted increase in their discount. The performance gap widened throughout the year with the MSCI Europe Growth returning 15% compared to zero for the MSCI Europe Value index.

At the same time, performance deviation has been widening between large caps and small/medium caps. Since the end of 2009, the CAC40 has underperformed the CAC Mid&Small 190 by more than 21%.

This gap looks unsustainable and warrants an overweight position in the yield/large caps/discounted stocks theme. We believe investors will benefit in 2011 from these companies being rerated as they trade at a discount to the market, have below average volatility, and boast robust fundamentals.