Volatility Spikes Fuel Tactical Trading as Investors Seek Opportunities in European Equities

Heightened volatility surrounding earnings announcements in European equity markets has attracted a surge of long-term investors eager to capitalize on price swings.

Data from Bank of America reveals near-record volatility in European shares on results days, with only half of the fourth-quarter earnings season complete. This volatility has created both opportunities and risks for investors.

Tom Lemaigre, portfolio manager at Janus Henderson Investors, sees the volatility as a tactical advantage. "It allows me to buy oversold stocks and sell overbought stocks," he said. "I can take a longer-term view while taking advantage of short-term opportunities."

Hedge funds and market structure changes have contributed significantly to the trend of increased single-stock volatility. Companies that missed fourth-quarter expectations have underperformed by a median 2.6% on results day, the highest since 2012. In contrast, those meeting or exceeding EPS estimates have outperformed by a median 1.7%, the second strongest on record.

Amundi's Barry Glavin notes that the team has leveraged this trend. "As long-term investors, we seize opportunities to buy stocks at lower prices when our investment thesis remains unchanged," he said.

Recent earnings announcements have witnessed significant share price movements, both positive and negative. Richemont surged by 16.4%, while UBS dropped 7% on their respective results days.

Despite the discomfort that volatility may cause, Amundi's Glavin believes it offers value-adding opportunities for active long-term managers. David Lambert of RBC BlueBay Asset Management echoes this sentiment, stating that his team will buy shares in appropriately valued businesses after earnings if they experience significant price swings on an unchanged outlook.

"Long term, you need agility and the ability to adjust positions when the market moves aggressively," said Lambert. "Market swings can provide opportunities to lock in gains or make adjustments."