CHM (Lyxor) is an ETF which replicates the Stoxx Europe 600 Chemicals Index, composed of the main European stocks of the sector.
This index is rather concentrated since it has only 25 holdings. By geography, the index is predominantly German with a weighting of nearly 60%, about 13% for France and 10% for the Netherlands.
CHM bears costs of 0.3% which are in the market average with AUM of approximately € 23 millions. The replication method is indirect (via a swap) and the dividend are capitalized.
Index & components
The ETF CHM (Lyxor) allows the investor to access a basket of 25 stocks in the chemicals sector, which are primarily German.
These are mainly large-cap stocks that have a worldwide exposure with some cyclical characteristics (to varying degrees however) and more or less linked with oil prices, which is the raw material for many products.
It should also be noted that Bayer, which represents nearly a quarter of the index, is actually a company that has gradually refocused on the healthcare and agrochemical sectors after the takeover of Monsanto, the US leader of GMO. The group weighs more than € 100bn in capitalization, and after a significant decline in 2016 has begun a medium-term rebound in 2017.
Moreover, the chemical index is much less homogeneous than it appears including companies with very different specialties, such as Givaudan and DSM specialists in food extracts, while Air Liquide is the world's No. 1 in industrial and medical gases, and BASF is the world leader in petroleum-based chemistry.
The end markets are therefore very different as well as the growth profiles and cyclicity, finally the European chemical index represents a very interesting basket that can be considered for a long term investment. Moreover, the index is essentially composed of euro zone securities, with a limited exchange rate risk, which mainly corresponds to the Swiss franc (around 7% of the capitalization), while the Sterling, which is more at risk, represents only 4% of the index.
The volatility of this tracker is relatively low in "normal mode" but marked consolidations can take place during fears of economic reversals, or decline in global GDP growth, so it is also an interesting vehicle to play mid-term trends. The chemicals sector should be one of the main beneficiaries of the new growth cycle in Europe.
Latest developments
After an increase of 5.5% in 2016, the sector trend is positive for 2017, which rose 7.5% since the beginning of the year with double-digit earnings growth.
The three main stocks (Bayer, BASF and Air Liquide), which account for about half of the index's capitalisation, are technically driven by strong earnings prospects and are expected to carry the index in the coming weeks.
The stabilisation of oil prices is a positive factor, and global growth now affects all regions, Asia and Europe in particular. While demand remains strong, rising commodity prices remain a problem for margins.
The problems associated with the Houston in Houston ( explosion of the Arkema plant) could eventually lead to tighter regulations that could affect costs in certain regions.
