CST ( Lyxor) tracks the performance of the Stoxx600 Index Net Return Construction & Materials.
This index includes 21 stocks, specialized in the construction market through manufacturers of cement & aggregates such as Lafarge, CRH or Heidelberg but also manufacturers specialized in construction materials such as Saint-Gobain, as well as construction companies which can at the same time be engineering firms and dealers as Vinci, Ferrovial and Eiffage. It should be noted that the top 4 stocks (Vinci, CRH, Saint Gobain and LafargeHolcim) accounts for nearly half of the capitalisation of the index (48%), which is focused on European companies but whose activities are very international and for certain holdings (as CRH) includes a strong presence in the United States, while others have exposure in the emerging markets (ex: LafargeHolcim).
The construction sector has been particularly affected by the financial crisis and subsequently by the eurozone crisis between 2008 and 2012, as this activity mainly depends on financing whether for infrastructure (public authorities) or for the residential sector. The construction index appears to be gradually recovering in Europe, with the increase in building permits but no clear upturn has yet taken place in Europe for the time beingdue to still rather low growth (1.6% in 2017 estimated), while the needs for housing construction is very significant.
The outlook for this sector is now more favorable, with a recovery that seems to be strenghtening in Europe, interest rates that remain very low -even if they are rising- and large-scale domestic projects such as Greater Paris which will represent more than 30 billion investment in infrastructure, and in the US where Donald Trump wants to invest $1000 BN in infrastructure, including its border wall with Mexico even if it becomes less and less likely.
Growth in the sectoris expected to remain driven by the major regions of the world outside Europe with attractive prospects in India and Africa in the medium term. China is considered as a special market for cement, monopolized by local players who are very competitive on prices, and is hardly addressed by Western multinationals.
The CST ETF fee is reasonable at 0.3%, and in the average of our selection. Assets Under Management : 42 €M.
Sector performance has been positive since 2013 (exit from the crisis), and CST rose by 11% in 2016 (compared with + 1.7% for the Stoxx600) and has already grown by 11% since the beginning of the year. CST seems to us an excellent vehicle to play the recovery of European growth in the medium and long term. The 2016 results and the 2017 outlook for large construction companies are overall encouraging, while European growth is expected to accelerate and have a strong impact on the utilisation rates which are at a historically low level.
