The ETF MSE (Lyxor) replicates the index EuroStoxx50 Net Return which is composed of the 50 largest stocks in the Euro zone, which are selected according to their market capitalization, liquidity and sector representativeness. The index seeks to respect a weighting by country and by economic sector reflecting as much as possible the economic structure of the euro zone.
The MSE ETF faithfully replicates the Euro Stoxx50, with a reasonable fee of 0.2% and an AUM of € 8009m. The replication method is direct and there is a dividend distribution policy.
Alternative ETFs: EUE ( iShares in Euro), C50 ( Amundi in Euro).
Index & components
The index is dominated by the Franco-German couple, which accounts for about 70% of the capitalization, with the remaining 30% mainly in Southern Europe (essentially Italy and Spain) and the Benelux countries.
The 10 largest stocks represent approximately 38% of the index and have a very large market capitalization of around € 100bn, including 5 German companies (Siemens, SAP, Bayer, BASF and Allianz) and 2 French companies (Total and Sanofi). The index is fairly balanced from a sector perspective, with the most important being financials (22.2%), followed by Industry (15,1%), consumer goods cyclical (11.5%), durable goods (10.6%) and health (9.5%).
In regard with the Euro zone, there is no direct foreign exchange risk, however, in the case of large companies, there is a clear sensitivity to currencies especially for the Euro / dollar. The Euro Stoxx50 is representative of the euro area economy, with a lower weighing for energy than in some national indices (such as the CAC40), while the financial sector (banks + insurance) remains a key compartment but without reaching the weight of the Italian or Spanish indices (33%).
The volatility of the Euro Stoxx50 is rather lower than that of the national indices, due to geographical diversification, the absence of sectoral bias and the greater inertia due to the size of the stock market capitalizations. If we compare the Euro stoxx50 with the Stoxx600, we will find a much more concentrated index on the core of the euro area and large market capitalizations, narrower also geographically due to the absence of the United Kingdom, Switzerland and of the Nordic countries.
The political cycle remains an important factor for the zone and has for the moment been particularly favorable, with the victory of the liberals in the Netherlands then in France even if Germany is slow to set up a coalition with the Greens and Liberals after Merkel's victory. The main political risk is now materialized by Spain, which faces the declarations of independence of Catalonia and a high-risk regional election on 21 December, while Italy must vote in the spring of 2018.
Latest developments
The Euro Stoxx50 posted a slight increase of 0.7% in 2016, while the increase reached 9.2% in 2017 (against + 10.2% for the Stoxx600 driven by Switzerland and the Nordic countries).
Eurostoxx50 is driven by growth sectors (Technology and consumer goods) as well as some industrial sectors such as Chemicals, while banks see their momentum weaken due to mixed results in the third quarter due to disappointing trading and a decrease on rates in the wake of the “dovish”speech of the ECB. The Eurostoxx50 is also sensitive to the rise of the Euro against the dollar which seems to stabilize between 1.15 and 1.20, as well as against other currencies (Sterling, Swiss Franc).
Q3 european results were not as good as expected, while if around 50% of companies beat market estimates, but nearly 20% were below expectations. Valuations are now more demanding (around 16x 2018 earnings) while risks increase from a geopolitical point of view (tensions in the Middle East and on the Korean peninsula), and with the rise of the Euro and oil. The tense US market is also a source of concern, with a likely correction if President Trump's tax plan were to be rejected by Congress.
