WHY DO THE UK EQUITY INDICES CURRENTLY OUTPERFORM?

Since the beginning of the year, the UK equity indices are in the green, unlike the US and European indices. The FTSE has outperformed the SX5E by more than 7%, despite the appreciation of the GBP against the EUR. Where does this outperformance comes from? We decompose the performance gap between the UK broad and euro index to try to explain this outperformance. It appears that almost 70% of the performance gap comes from sector weighting effects, the last 30% coming from pure performance effects Combining the two effects, the energy and technology sectors are two the main drivers of the outperformance of the UK indices since the beginning of the year (2.7 points out of the 4.4 points of outperformance). The energy contribution is dominated by the performance effect (but sector effect plays too) whereas the technology contribution is purely sector-driven (as the sector weight in the UK index is weak). Consumer discretionary also contributed for 1 point of performance gap , with a strong weight effect. It is thus the significant value bias that explains the outperformance of the UK indices.