Value-Momentum on German Stocks: Best Risk-Adjusted Returns in Europe

Germany produced 7.57% CAGR with +2.50% excess over the DAX. The Sharpe of 0.350 is solid, and the strategy held up well in most downturns, though the -40.90% max drawdown is deeper than some other exchanges in the study.

Contents

1. Method
2. The Screen
3. What We Found
4. Key Observations
5. Limitations
6. Takeaway
7. Part of a Series

Data: FMP financial data warehouse, 2000–2025. Updated March 2026.

Method

Based on Asness, Moskowitz, and Pedersen (2013). For the full methodology, see our US flagship post.

The Screen

-- Value-Momentum Germany (XETRA) Screen
-- Run at: cetaresearch.com/data-explorer?q=_aHUNUuvqU

SELECT
    k.symbol,
    p.companyName,
    f.priceToEarningsRatioTTM as pe_ratio,
    k.returnOnEquityTTM * 100 as roe_pct,
    f.debtToEquityRatioTTM as debt_to_equity,
    k.marketCap / 1e9 as market_cap_billions
FROM key_metrics_ttm k
JOIN financial_ratios_ttm f ON k.symbol = f.symbol
JOIN profile p ON k.symbol = p.symbol
WHERE f.priceToEarningsRatioTTM > 0
    AND f.priceToEarningsRatioTTM < 20
    AND k.returnOnEquityTTM > 0.10
    AND f.debtToEquityRatioTTM >= 0
    AND f.debtToEquityRatioTTM < 1.0
    AND k.marketCap > 500e6
    AND p.exchange IN ('XETRA')
ORDER BY f.priceToEarningsRatioTTM ASC
LIMIT 100

What We Found

Full period summary (2002-2025):

The +2.50% excess over the DAX shows the value-momentum screen adds real alpha in this market. The -40.90% max drawdown is deeper than the DAX's own drawdown during the financial crisis, so the strategy doesn't provide crisis protection here. But the steady accumulation of alpha across most periods makes it a useful component of a multi-exchange allocation.

Year-by-year results:

Key Observations

Germany's Mittelstand fits the value-momentum screen. Germany's economy is built on mid-cap industrial companies: precision engineering, automotive suppliers, specialty chemicals, healthcare equipment. These businesses trade at reasonable P/E ratios, maintain strong ROE through operational excellence, and keep leverage low. The value-momentum screen naturally gravitates toward this profile. The 2005 result (+48.69%) and the steady mid-teens returns from 2013-2015 (+26.16%, +22.96%, +11.79%) reflect periods when Germany's industrial base was firing on all cylinders.

2008: -28.60%. The P/E < 20 filter kept the portfolio out of the overpriced financial stocks that suffered worst. German industrial companies, while cyclical, had more conservative balance sheets. The D/E < 1.0 filter reinforced this. Still, the -40.90% max drawdown shows the strategy took heavy losses during the crisis.

2022: -6.48%. Germany's value portfolio of industrials and consumer companies absorbed the rate shock with a modest loss. This was one of the strategy's better defensive showings.

Limitations

Returns are in EUR. The euro has fluctuated against the US dollar over this period, ranging from rough parity to $1.60. International investors face currency risk, though EUR/USD has been more stable than most emerging market currencies.

+2.50% excess vs the DAX is solid but not spectacular. After transaction costs, some of this excess narrows. The case for Germany is a combination of reasonable alpha and a market structure that suits the value-momentum screen.

Win rate is 45.10%. The portfolio underperforms the DAX in more than half of semi-annual periods. Like Canada and Hong Kong, the positive long-run result comes from winning bigger, not winning more often.

5 cash periods. All in 2000-2001 and a few scattered later periods. Data coverage is solid from 2002 onward.

Eurozone integration risk. Germany's economy is deeply embedded in the eurozone. ECB policy, southern European sovereign risk, and EU regulatory changes all affect the portfolio. The 2011 eurozone crisis showed this clearly (-10.34%).

Takeaway

Value-momentum on XETRA produced 7.57% CAGR with +2.50% excess over the DAX. Germany's industrial economy generates a natural supply of the companies this screen selects: profitable mid-caps with reasonable valuations and conservative balance sheets. The -40.90% max drawdown shows the strategy doesn't provide crisis protection, but the steady accumulation of alpha across most periods makes it a useful component of a multi-exchange portfolio.

Part of a Series

• Value-Momentum: US Stocks
• Value-Momentum: Global Exchange Comparison

Data: Ceta Research. FMP financial data warehouse, 2000-2025.