Share prices have marginally recovered during the past quarter. At a glance the DJEuroSTOXX50 lost about 3% while the DAX gained 3.3%. But the European flagship index actually recovered slightly as dividend payments are not added back, i.e. it is a price index. The German index performance was again superior as export related stocks (e.g. chemicals and auto producers) did particularly well.
Our long portfolio appreciated by 7% during Q2 11. This positive performance and rather strong outperformance was also the result of dividend payments which typically culminate in Q2 of any given calendar year. Disproportionately high dividends were paid by companies we had selected from the European flagship index for our long portfolio (e.g. Eni, Total, and Vivendi). But several smaller European stocks (e.g. PPR, Michelin, and OMV) also paid pretty high dividends.
The performance gap between our long and short recommendations was +8.2pp or +8.4%. This was the best performance of the past year or so. Again, dividends played an important role. While almost all of the companies in our long list paid dividends, only slightly more than 50% of the companies in our short list were able to do so. This is explained by the calculations of our WACC exercise. It results in fundamentally sound companies being selected for the long list while companies with weak profits and balance sheets typically end up in the short list.