Stoxx600 (MEUD) : A new upward move?

The MEUD ETF (Lyxor) created in 04/2013 replicates the STOXX600 Net Return index which is composed of the 600 largest European stocks representative of the main sectors, while the stocks ​​of the Euro zone represent approximately 53% of the index. MEUD has therefore a significant exposure to other European currencies, in particular the British Pound and the Swiss Franc.

The fees of the ETF MEUD are quite low at 0.07% and the AUM is € 970M. Replication is direct (physical) and there is a dividend capitalization policy.

Alternative ETFs: C6E (Amundi in Euro), ETZ (BNPP Easy in Euro), EXSA (iShares in Euro)

Index & components

The MEUD (Lyxor) tracker replicates the European benchmark, which enjoys a very important depth with 600 holdings ​​and a great diversity by its exposure to the main sectors and countries of the European Union, including outside of the eurozone.

This index is a benchmark for the European markets, and we analyze its stock market behavior with great attention because the evolution of this index partly conditions our sectoral and geographic strategy.

The index is fairly balanced in its weighting with 4 major sectors that represent two thirds of the capitalization. In the first position is the cyclical and sustainable consumer goods sector (23.7%), which includes food giants such as Nestlé or AB-Inbev, as well as luxury, cosmetics and ready-to-wear brands like LVMH or Inditex as well as the automotive sector; financial (21.6%) industry (14.5%) and health (11.8%). In this index, energy-related values ​​represent only 6.1% and raw materials 8.4%.

In addition, it should be noted that there is a certain level of currency risk in this index consisting of 25% of British securities and 13.3% of Swiss securities, even if the securities concerned are international and fairly exposed to the dollar.

The STOXX600 is very representative of the European economy because of its sector weighting, which is less favorable to oil than in some national indices (like the CAC40), while the financial sector (banks + insurance) remains a key compartment with 21.6% of the weighting but without reaching the weight of the Italian or Spanish indices (c.33%). This balanced weighting allows MEUD to have lower volatility than the national indices, as this index is much more diversified and without sector bias.

The ETF MEUD has the advantage of replicating a broader index than the Eurostoxx50 and which also incorporates smaller capitalizations, but with a more dynamic path. The European economic cycle is currently being strengthened, which is validated both by the PMIs datas and also the results of companies above expectations in 2017.

The ECB remains a factor of stabilization and the monetary normalization should be very progressive in the absence of inflation and despite the Bundesbank which would like a more restrictive policy.

 

Latest developments

The Stoxx600NR ended 2017 with a 10.6% increase, driven by double-digit growth in corporate earnings, while further upward EPS revisions for 2018 should support the index given the economic recovery in the Eurozone, especially as corporate margins are still far from pre-crisis levels (2007).

Expectations of earnings growth for European companies are around + 10% for 2018 in an environment of low interest rates and still moderate energy prices, but also a stronger US cycle in the short term due to the fiscal plan impacts and the rise in oil prices.

One of the main problems in the short term is the evolution of the Euro / Dollar parity which has just crossed the 1.20 threshold, which could weigh more and more on the margins of the most exposed sectors such as technology, aeronautics or health. This is offset by good news on the political front, with the likely formation of a large German coalition in the coming months, but still remains the Italian elections on 4 March.

The stoxx600 valuations remain reasonable at this stage of the cycle with a P / E of 16x 2018 results, which leaves the possibility of a rise in the index roughly the same as corporate earnings.