SOURCE: Russell Investments

Russell Investments

May 22, 2013 09:22 ET

Ahead of 2013 Russell Indexes Reconstitution, a Look Back Shows Dynamic Stocks Helped Drive a Return of 29% for the Russell Developed Europe Index Since 2012 Reconstitution Despite Eurozone Economic Contraction as of May 17; Country Constituent Greece Returned 67% for Same Time Period

SEATTLE, WA--(Marketwired - May 22, 2013) - The European equity market as reflected by the Russell Developed Europe Index returned 29% since the completion of the Russell Indexes 2012 annual reconstitution, the annual rebalancing of the Russell Global Indexes, on June 25, 2012 to May 17, 2013, with dynamic stocks as reflected by the Russell Developed Europe Dynamic Index significantly outperforming defensive stocks as reflected by the Russell Developed Europe Defensive Index for the same time period.

This is despite recent reports indicating that Eurozone gross domestic product (GDP) fell in the first quarter of 2013, the sixth straight quarter in a row and by all reports the longest postwar recession for the region.

Within the Russell Developed Europe Index, Greece (+67.8%) has been the top performing country constituent since last year's Russell Indexes reconstitution, followed by Austria (+35.9%) and Finland (+35.8%). Luxembourg (+10.5%), the Netherlands (+21.3%) and the United Kingdom (+23.7%) have been the bottom performing country constituents in the Index for this time period.

Russell Indexes recently announced that Greece will be reclassified from a Developed to an Emerging market country at the conclusion of this year's Russell Indexes reconstitution in June.

In Russell Investments recently released quarterly Strategists' Barometer, Russell Investments Europe investment strategist Wouter Sturkenboom commented on the economic outlook for Europe:

"The Eurozone has not done itself any favours so far in 2013; a fitting metaphor is that of a pile of sand on which new grains are continuously falling. Eventually, the pile becomes unstable and one new grain may cause an avalanche. The Cypriot deal is instructive. It required budget cuts and a reorganisation of the banking sector that imposed big losses on bondholders and depositors. This action reaffirms our belief that the Eurozone will hold the line in 2013. What has also become clear, however, is that German willingness to use taxpayer money to bail out countries and/or banks appear to be waning, probably to some degree because of their upcoming elections in September. However, the fact that officials are presenting the Cypriot deal as a template for future bailouts is important as it will shift the perception of deposit and senior bond holders regarding the safety of their holdings. We believe if anything this increases 'tail risks' in the peripheral markets. Financial contagion could result if capital begins to flee from riskier markets.

"With the corruption scandal in Spain, political developments in Italy, and the handling of the Cypriot bail-out it has certainly added a few grains in 2013. Our growth outlook therefore remains negative; we would need to see an improved situation led by Germany and global growth for the investment prospects in the Eurozone to improve."

 
Russell Index Returns
Index / Index Country Constituent   2013 Year-to-Date Return as of May 17   June 25, 2012 through May 17, 2013
Russell Developed Europe Index   13.1%   29.4%
Russell Developed Europe Defensive Index   14.0%   25.2%
Russell Developed Europe Dynamic Index   12.2%   34.4%
Austria   5.4%   35.9%
Switzerland   18.8%   34.6%
Germany   10.9%   34.1%
Spain   10.2%   34.9%
Finland   14.9%   35.8%
France   12.1%   32.7%
United Kingdom   13.0%   23.7%
Greece   29.1%   67.8%
Ireland   19.8%   34.5%
Italy   8.8%   29.1%
Luxembourg   -1.1%   10.5%
Netherlands   9.9%   21.3%
Norway   8.4%   25.9%
Portugal   12.5%   35.4%
Sweden   16.8%   32.9%
         

Source: Russell Investments. Returns are denominated in euros.

Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell's publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index.

Within the Russell Developed Europe Index, country constituent Belgium has one constituent with more than a 50% weighting and Denmark has one constituent with more than a 40% weighting, so individual returns for these countries not included in this analysis.

Opinions expressed by Mr. Sturkenboom reflect market performance and observations as of May 17th, 2013 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.