The MEUD ETF (Lyxor) replicates the STOXX600 Net Return Index, which is made up of the 600 largest European stocks representative of the main sectors of the index, while the holdings of the Euro zone represent around 53% of the index. Therefore this index as 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% (recently divided by 2) and the AUM is € 504M. Replication is direct (physical) and dividends are capitalized.
Alternative ETFs: C6E ( Amundi in Euro), ETZ ( BNP 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 stocks 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 conditions some of our sectoral and geographic strategy.
The index is fairly balanced in its weighting with 4 major sectors that represent c. two thirds of the capitalization. In the first position is the cyclical and durable consumer goods sector (24%), which includes agri-food giants such as Nestlé or AB-Inbev and luxury, cosmetics and ready-to-wear brands such as LVMH or Inditex as well as the automotive european leaders; the other major sectors are financial (21.5%) industry (14.4%) and health (12%). In this index, energy-related stocks represent only 5.8% and raw materials 8%. In addition, it should be noted that there is a certain level of currency risk in this index as it also consists in 25% of British securities and 13.3% of Swiss securities, even if the companies 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% of the weighting but without reaching the weight of the Italian or Spanish indices (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 incorporates smaller, but more dynamic capitalizations.
The European economic cycle is currently being strengthened, which is validated both by the PMIs and also the corporate results that have exceeded expectations since the beginning of the year. The ECB remains a stabilizing factor and monetary normalization is expected to be very gradual in the absence of inflation and despite Germany's desire for a more restrictive policy. The political cycle has so far been favorable to Europe, but there is some concern about the Southern Europe, particularly Spain whose integrity is at stake after the declaration of independence of the Catalan leaders, but also Italy which will have to elect a new government in spring 2018.
Latest developments
The stoxx600 ended 2016 with a slight increase of 1.7%, thanks to a very good month of December and after spending most of the year in the red.
The year 2017 is more clearly bullish (+ 11.5%), which is explained by the fall in the political risk premium after the favorable elections for the European project in the Netherlands, in Germany and especially in France, while economic growth is accelerating. Q3 2017 corporate results are currently higher than expected in 60% of cases, which is validating the scenario of an upward cycle revisions in corporate profits and should support the index in the coming months, especially as corporate margins are still far from pre-crisis levels (2007). Expectations for earnings growth for European companies are around + 15% for 2017 and 2018 in a low interest rate environment and moderate oil prices, but also a much more mature US cycle which represents the main risk.
The rise of the euro against the USD seems to have come to a halt after the ECB's declarations, which are moving towards a very gradual normalization and a new support in terms of liquidity when needed. The threshold of 1.20 should therefore hold for the moment especially as the rise in US rates comes in support of the USD. Moreover, new political concerns are emerging in Spain after the Catalan referendum and the declaration of independence, but Spanish 10-year rates remain moderate at 1.6% and the stock market index holds the shock for the moment.
These developments remain very much monitored by the markets even if there is no panic for now.
