The PHG ETF (Lyxor) replicates the Stoxx Europe 600 Consumer Goods Index (SXQR) which is composed of the main European stocks. This index is quite concentrated since it has only 34 values. By geography, the index is predominantly English with a weighting of 51% for the United Kingdom, 23% for France and 10% for Germany.
ETF PHG bears a 0.3% fee with AUM of € 30million. The replication method is indirect (via a swap) and there is a dividend capitalization policy.
Alternative ETFs: EXH7 (iShares in Euro), SXOQR (Invesco in Euro)
Index & components
The consumer goods Europe Index is composed of large market capitalizations, between 40 and 100 billion € for the top 10 companies, belonging to several sectors: manufacturers of luxury products (Richemond, LVMH) but also hygiene products and beauty (L'oreal, Reckitt, Henkel ..), while the first capitalization is a cigarette manufacturer (BAT).
The main companies that make up this index have the characteristics of having very strong brands, which allow them to benefit from growth often higher than the world GDP, with strong associated margins (ROP> 20%). Moreover, these companies are not very cyclical, which gives them a defensive aspect during crises. The risk / return ratio is therefore very interesting in this sector.
The sector's players often have a fairly significant exposure to emerging countries, particularly Asia, where growth is likely to be impacted by fears of an economic slowdown in the region, or by a fall in the major Asian currencies, the Yen and Renminbi. It should be noted that more than half of the index is composed of English securities, which implies an high exposure to the Sterling. However, this exposure is actually quite limited since the revenues of these companies are primarily realized on a world scale, and very little British. However, the Fed's monetary policy is likely to have a significant impact on currencies and emerging economies, which should be monitored as well as the level of the dollar against the Euro.
The beginning of economic war between China and the US is also a cause for concern for this very international sector, which could end up being impacted if the situation worsens.
Latest developments
After an increase of 11.6% in 2017 slightly above the Stoxx600NR (+ 10.6%) in 2017, PHG posted a slight increase of + 1.6% since the beginning of the year.
This good relative performance of the index (versus Stoxx600NR: -0.2%) is explained by the strong rebound of heavy weightings of the index like British American Tabacco (+ 9.9% in July) which is a perfect defensive or Reckitt Benckiser (+ 8.9% in July) as well as Unilever and luxury stocks such as LVMH which published excellent results in the first half of 2018 in a context of digital transformation and while valuations remain fairly demanding (at around 20x estimated earnings) for a profit increase which should be around 10% in 2018.
The main problem of the sector remains the strong exposure to emerging countries, and China, which are particularly exposed in case of commercial war.
