With the latest change effected in November 2025, we have now reloaded 65% of the fund with new investments. In early 2025, 74% of the fund’s holdings touched multi-year-lows, while eurozone equity markets made new historic all-time highs. The shift over the last couple of months into the incredibly attractively valued defensive giants has decreased the risk of the fund. Following 17 years with a portfolio beta of above 1.3 and a tracking error of about 14, driven by our very pronounced exposure to financials in general (some 50%) and retail banks in particular (some 30%), we are now back to the same defensive positioning we had at the end of May 2009, following the massive rotation out of defensives onto risk (financials and cyclicals) with a market beta (1.05) and a tracking error of just 7.4. Back in May 2009, the fund was left with some 37% upside to fair value and had a dividend yield of 0.9%. Currently, we see a potential upside to fair value of 80% with a dividend yield of 3.5%.
The key driver for positive and negative alpha is the earnings revision ratio. 74% of our holdings are at trough earnings, meaning negative earnings revisions are petering out. The inflection point for positive alpha is not positive earnings revisions but a bottoming out of negative earnings revisions. The only meaningful overweight we have held since the beginning of 2025 is our exposure to auto, which on average has underperformed. Rather than being underperforming year-to-date, we are currently 10% ahead of the benchmark, as the vast majority of these 74% holdings are likely to have reached the anticipated turning point. Chances are that we are into the first inning of the next major outperformance cycle, similar to the scenario witnessed in 2021-2023 (the fund generated 52% alpha in those three years).
