The ETF MEUD allows to track the European benchmark index which benefits from a very large depth with 600 large caps and a great diversity by its exposure to the main sectors and countries of the European Union, and also outside the euro area.
We use this index mainly as a benchmark for our portfolios, and analyse its behavior with much attention because the evolution of this index determines our strategy by sector and geography.
The Index is fairly balanced in its weighting with 4 major sectors accounting for two-thirds of the capitalization, first with the consumer goods sector, discretionary and Staples (25%) with agrifood giants such as Nestlé or AB-Inbev and stocks of luxury, cosmetics and fashion such as LVMH, and Inditex ; Financials (21%), industrials (14%) and healthcare (13%), energy stocks represent only 5% and basic ressources 8% of the index.
Furthermore, it should be noted that there is a certain level of exchange rate risk in this index because it is constituted at 27% of UK stocks and 15% of Swiss, even if the securities concerned are international and fairly exposed to the dollar. The stoxx600 is very representative of the European economy thanks to its sector weighting, including oil which is less significant than in some national indexes (such as the CAC40), while the financial sector (banking and insurance) remains a key compartment with 20% of the weighting but without reaching the weight of the Italian or Spanish indexes (33%).
The ETF MEUD closely replicates the Stoxx600, with reasonable fees of 0.07%, recently divided by 2! The volatility of the stoxx600 is lower than that of national indexes, because this index is much more diversified and without sectoral bias. The Stoxx600 ended the year 2016 with a slight increase of 1.7%, thanks to a very good month of December and after having spent most of the year in the red. The year 2017 is so far more bullish (+9.2%) due to the decrease in the political risk premium after the elections in the Netherlands and especially in France, while the theme of the rising rates and reflation is now at the heart of the debate. The Q2 2017 company results are highly anticipated as they could validate the scenario of a cycle of upward revisions of corporate profits which should bear the index in the coming months. The rise in the Euro/USD is to be monitored, especially the level of 1.15 because exceeding it could weigh negatively on the Index, which seems rather likely if the normalisation of the monetary policy of the ECB is confirmed.
