CAC 40 (CAC) : Heading for 5 500 pts

The tracker CAC (Lyxor) seeks to replicate the CAC 40 index which consists of the 40 largest French companies representing the main sectors, namely selected by the importance of their floating market capitalisation.

The ETF’s fees are fairly low at 0.25% and the AUM are € 4 500M. Replication is direct (physical) and dividends are distributed.

Alternative ETFs: C4D (Amundi in Euro), E40 (BNP in Euro)

 

Index & components

It should be noted that the 10 largest stocks (which represent about 53% of the index) belong to very different sectors, in contrast to the DAX (overweighting industrial stocks) or the FTSE100 (pharmaceutical and financial), the CAC40 is is indeed more composite in its sector composition.

However, two heavyweights, Total (9.3%) and Sanofi (8.3%) may impact the index depending on specific underlying fundamentals factors, which may represents a bias. Sector-wise speaking, we see that the consumer goods sector represented by the luxury goods and cosmetics, such as LVMH or Loreal, is the most important for the index (19%), ahead the industry ( 18%), financials (15%) or Consumer Staples (11%). The CAC40's companies ​​are often world leaders with a very international exposure, and little dependent on the domestic market and with a fairly strong dollar sensitivity.

French macroeconomic statistics are improving, but above all the country has eliminated a major risk with the election of Emmanuel Macron, liberal and pro-European. The risk premium linked to the Eurozone disaster scenario has begun to decline as from the first round results in April, but the positive impact on French growth due to the dynamics of the election and the hopes for structural reforms and the tax reduction on companies and capital - confirmed for the 2018 budget - are still far from being integrated. France is at the beginning of the cycle and heavy, positive trends this time could be triggered. The medium-term potential of the index is high, provided that the earnings momentum is really triggered after several false starts since 2012 - which seems to confirm the corporate results in the first half of 2017.

Financials are key as they are expected to benefit from higher long-term rates (with rising growth and inflation expectations) and a more favorable political environment.

 

Latest developments

In 2016, the CAC40 achieved a performance of 4.9% and 12.5% ​​since the beginning of 2017, but it is still far below from its 2007 levels (6 168 pts) or 2000 (6 945 pts ), and is lagging behind the US, English or German indices.

This must be put into perspective by the fact that the CAC40 does not account for dividends, which penalizes it by about 3% per year. Otherwise, many industrial / cyclical companies offer significant potential for higher margins, after a rather weak 2016, especially in the banking and construction sectors.

The expectations of rising corporate profits of the CAC40 are about + 15% for 2017 and 2018 in a low-interest rates environment and moderate oil prices. One of the factors to be monitored in the short term is the rise of the Euro against the USD, which seems to peak after reaching the 1.20 threshold. Beyond this level, this could hinder the index increase and will become problematic for certain sectors (technology, aeronautics, etc.), but the potential for a further rise in the euro appears more limited in the medium term due to a rise in interest rates, which is likely to be very gradual in Europe, with GDP growth rate that remains for the moment weaker to that of the US, and new political concerns, after the Catalan referendum, a difficulty in finding a coalition in Germany and the Italian elections at high risk by spring 2018.