Barclays is highlighting value as a standout factor in European equities amid a market backdrop in which momentum appears to be losing traction and monetary policy is heading in a more restrictive direction.
Analysts at the bank point to three central forces underpinning their preference for value: persistent inflation, an anticipated rise in interest rates and an increasingly fragile momentum trade. Together, these elements form the basis for the strategists' view that value is positioned to catch up.
With the European Central Bank expected to begin a hiking cycle, Barclays argues that value stocks historically perform well when policy tightens. The strategists, led by Emmanuel Makonga, contend that value shares have not fully reflected this hawkish pivot and therefore present what they describe as a "catch-up opportunity."
"Value has been slow to reprice the hawkish shift, creating a catch-up opportunity," the strategists wrote.
Momentum, by contrast, is portrayed as weakening. Barclays points out that earnings revisions for the momentum factor have turned negative even though price momentum itself remains elevated. That divergence leaves momentum "increasingly fragile," the team said, and they note that positioning in high-momentum names remains elevated despite some modest easing, offering only limited protection should sentiment roll over.
The strategists further flag a concentration risk within momentum leadership. Since the onset of the U.S.-Iran conflict, leadership has rotated sharply toward energy and companies benefiting from war-related dynamics, narrowing the breadth of momentum. Barclays views this concentration as opening the possibility of a pronounced unwind if those tensions abate, a scenario in which value could be a primary beneficiary.
Describing value as "the cleanest rotation exposure," Barclays makes the case that a broader leadership shift away from momentum would favour value stocks. In addition, the strategists characterise the current market as reflationary - a mix of persistent inflation and resilient growth - and say this specific environment is typically supportive of value.
"Value screens as the cleanest way to express reflation without relying on pure momentum or defensive yield trades," the team wrote, adding that their model shows "current Value price momentum is not fully pricing a reflationary upswing," which implies further room for value to outperform.
From a sector perspective, Barclays recommends selective exposure to cyclical laggards and consumer stocks, as well as software, defence, healthcare and banks, as direct ways to express the value trade.
Overall, Barclays frames value as an underpriced lever to capture a potential shift in market leadership should macro conditions and positioning evolve in the ways the strategists describe.