While European analysts’ stock-picking was horrible in 2009, analyst picks have actually done very well over the last 20 years according to Citi Investment Research.
Despite the commonly held notion that analyst recommendations are rubbish.
Citi European Portfolio Strategy via FTAlphaville: “We analyse consensus recommendations to judge how analysts have fared in 2009. Mixed report. Good start and finish with dire performance in between would be a fair summary. Analysts have once again struggled at a big turning point.
But, investors should also consider analysts’ track record over the past 20 years. Overall, pretty good, beating cash and equities. We also show how buying analysts’ “most loved” and selling analysts’ “most hated” stocks would have matched performance (pre-fees, post-leverage) from Europe’s long/short hedge funds. Pretty simple strategy, pretty consistent returns.”
The analysts, Citi notes, fare better when you look at their overall performance over the past 20 years. For instance, €100 invested at the end of 1993 in one of Citi’s analyst recommendation-driven strategies would have produced €397 by 2009. While just investing in equities would have produced a little less than €200.
That’s a whopping 100% outperformance. Conveniently, Citi also happens to be launching a new product based on analyst recommendations.
We think that analysts’ recommendations are more likely to add value in 2010 than they did this year. It is therefore timely that Citi has recently launched a new monthly report highlighting the 50 most and 50 least preferred European stocks on a three-month investment horizon according to our analysts.
You have to love these three-month investment horizons. They force analysts to jump through hoops in order to painstakingly justify such near-term trading views with ostensibly ‘fundamental’ analysis. We’re still sceptical about this Citi conclusion that European analysts have been so successful over 20 years, we’d have to see the exact data.