European stock markets have been laggards over recent years and now their price levels are trading at 30 year lows relative to the US (S&P500). We believe the main reason for this has been the stuttering trend in the recovery of corporate earnings. Given that we see the European Central Bank (ECB) continuing to create monetary stimulus and we are now witnessing fiscal expansion, we feel the environment could be right for an uptick in corporate returns driven by both revenue and margin expansion. The recovery in earnings has been patchy across different sectors – with some exceeding previous highs whilst many others are still lagging. We do not believe that all sectors need to recover to previous levels to drive stock markets to new highs. Indeed it is the transfer of value between sectors and companies which can give active managers further opportunities to outperform.