The L100 ETF (Lyxor) tracks the FTSE 100 Index, which is composed of the 100 largest UK stocks of key sectors, which are selected according to their market capitalisation.
The Index is pretty deep, and especially fairly balanced from a sectoral point of view. The particularity of a high weighting of the Commodities sector has to be noticed as the overall Oil & Gas + Mines sectors represents around 20% of the index (against 6% for the Stoxx600 for example), almost as much as the financial and consumer goods. The health sector is also very important and represents 11% of the Index. All of this implies that the FTSE 100 is very dollarized because the income of such companies are usually made largely in the USD currency.
The FTSE 100 is of course quoted in sterling. Therefore there is a particular exposure to the sterling. If the ‘Brexit’ failed to translate into a financial crisis, it must be said that the the shock was mainly passed on the British pound which has fallen since around 20% against the euro and the Dollar, while the FTSE 100 index rose by 14% in 2016 and of around 5% in 2017e. The effective exit of the United Kingdom, 6th global economy should occur before the end of 2019, while the trigger of Article 5 was carried out as planned in March 2017. Its impact should be felt in the long run because it will probably require an adaptation of the English model. But the weakness of Theresa May, which no longer has majority in Parliament, after the debacle of last June 8, could help lead ultimately to a ‘soft’ Brexit ‘. An extension of the period of negotiation (with preservation of the status quo) for another 2 years is not to exclude especially if negotiations are moving towards an agreement. However, Europe seems for now united against England, and firm in its requirements, while threats of dislocation in the United Kingdom are beginning to appear (reunification of Ireland under European flag and Scottish referendum).
Furthermore, the good news coming from the fall of the pound for large international English corporates which realize a small percentage of their revenue in Britain with a local cost structure, will come to an end because of the base effect. The pound fell by about 4% relative to the euro since the 1 mai 2017 and continues to be the main vehicle for bad news to be passed on. Furthermore, the fall in commodity price could end up having a negative effect on the Index, very exposed to the oil and mining sectors. For the moment the English index remains very resilient and concedes only a slight underperformance compared with Eurostoxx50 since the beginning of the year (+ 4.9% against + 6.1%). However the economic deterioration (inflation and household incomes as consumption is a key factor) could weigh on the currency in the coming months.
L100 expenses are only 0.15%. The fund size is 754 M€.
