The European benchmark enjoys a very important depth with 600 holdings and a great diversity by its exposure to the main sectors and countries of the European Union, including outside of the eurozone.
This index is a benchmark for the European markets, and we analyze its stock market behavior with great attention because the evolution of this index partly conditions our sectoral and geographic strategy.
The index is fairly balanced in its weighting with 4 major sectors that represent two thirds of the capitalization. In the first position is the cyclical and sustainable consumer goods sector (23%), which includes food giants such as Nestlé or AB-Inbev, as well as luxury, cosmetics and ready-to-wear brands like LVMH or Inditex as well as the automotive sector; financial (19%) industry (14%) and health (13%).
In this index, energy-related values represent only 7% and raw materials 9%. In addition, it should be noted that there is a certain level of currency risk in this index consisting of 24% of British securities and 14% of Swiss securities, even if the securities concerned are international and fairly exposed to the dollar.
The STOXX600 is very representative of the European economy because of its sector weighting, which is less favorable to oil than in some national indices (like the CAC40), while the financial sector (banks + insurance) remains a key compartment with 10% of the weighting but without reaching the weight of the Italian or Spanish indices (c.30%).
This balanced weighting allows MEUD to have lower volatility than the national indices, as this index is much more diversified and without sector bias. The ETF MEUD has the advantage of replicating a broader index than the Eurostoxx50 and which also incorporates smaller capitalizations, but with a more dynamic path.
The European economic cycle is currently weakening, which is validated both by the PMIs datas and also the market consensus for corporates which is adjusting lower at quick pace for 2019 results expectations. The ECB remains a factor of stabilization and the monetary normalization should be very progressive in the absence of inflation. A strong rebound is currently taking place in hopes of resolving the major trade and Brexit issues, while valuations are relatively attractive.
ETFs: MEUD (Lyxor in Euro),C6E (Amundi in Euro), ETZ (BNP Paribas Easy in Euro), EXSA (iShares in Euro)
