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European index insights: buying better beta


Buying better beta


Where equity markets go next is hard to call, but the eurozone could provide some relative safety now political risk has eased. Macron’s majority in France may rouse the bulls, but index exploration holds the key to returns. If you favour France’s prospects, look to the Euro STOXX 50 and Euro STOXX 300 over the MSCI Europe. If the reflation story is really your thing, consider the MSCI EMU Value Index.


Buying broad


Less demanding valuations, continued ECB support and earnings improvements are powerful drivers for broad European indices. The pick-up in global trade bodes well. Pick your manager wisely though; only 1 in 5 managers outperformed the MSCI Europe over the 12 months to the end of March.*

*Source: Morningstar and Bloomberg data from 31/03/2016 to 31/03/2017.

Chanchal Samadder

Chanchal Samadder, Head of Equity Strategy

Caveat emptor

Know too that these indices come with subtle, yet significant variations which could lead to very different returns over the next few months. They really do allow you to invest according to what you believe will happen next.

For example, the MSCI Europe offers a wide exposure to the Continent as a whole, including the UK, whereas the Euro STOXX 50 (with its 70% weighting to France and Germany) is much more of a play on domestic eurozone prospects.  The Euro STOXX 300 represents another way to seek domestic-focused opportunities, given it generates 57% of its revenue from within the EU.

Explore European indices




Mainland matters

Of the major indices, the MSCI Europe has by far the smallest weighting to France, which could be significant now Macron has freer rein to implement his pro-market and pro-Europe agenda.  In contrast, the Euro STOXX 50 and Euro STOXX 300 come with double the exposure. 


En Marche’s majority should prove pro-risk for eurozone assets in general, notably the more leveraged segments such as Banks and Italian equities, both of which feature heavily in the MSCI EMU Value Index.  That said, domestically-oriented small and mid-cap stocks may be the major beneficiaries of the promised tax reforms, so it could also be worth considering the MSCI EMU Small-Cap Index and its 16%+ weighting in France.

 Across the Channel, all eyes are on the UK’s hung parliament and its Brexit battle with hard-bitten EU negotiators. The Euro STOXX 50 and MSCI EMU index range have far less exposure to the UK than the MSCI Europe or the Euro STOXX 600. The latter two indices come with very similar economic exposures. You just get that little bit more diversification via the 150 or so extra stocks the Euro STOXX 600 holds.

At Lyxor, we’ve cut fees to 0.07% on our Euro STOXX 50 (Acc), Euro STOXX 300 and STOXX Europe 600 ETFs – providing some of the lowest cost broad exposures you can buy.**

**Source: Lyxor ETF, June 2017

Read more on European equities


Where companies get their money from 




MSCI Europe Stoxx 600 Eurostoxx 300 MSCI EMU
Africa and Middle East
4.45 4.41 4.19 4.18
Latin America
2.74 2.66 3.01 3.00
North America
19.90 19.69 18.62 18.70

Canada 1.51 1.49 1.45 1.45

United states 18.39 18.20 17.18 17.26
Asia
13.28 12.39 10.23 10.88

China 6.18 5.71 5.91 5.31

India 1.47 1.38 1.15 1.19

Japan 2.89 2.67 2.26 2.38
Oceania
2.23 2.15 1.72 1.78
Europe European Union 51.51 52.73 56.96 56.18

France 9.51 9.65 13.21 12.82

Germany 9.47 9.46 12.42 12.28

Italy 5.75 5.54 7.51 7.73

Spain 3.77 3.80 5.14 5.08

United Kingdom 11.71 12.60 5.90 5.82

Switzerland 1.85 1.94 1.26 1.27


Source: Factset, 1 & 5 June 2017.



Value in Value

Factors like low size and value play very firmly to recovery, reflation and an improving job market in Europe. That’s most obvious in sectors like financials, consumer discretionary and oil & gas, which together make up 50%+ of the MSCI EMU Value index. Financials alone account for nearly 37%.

These deeper value sectors are a mix of inflation stocks and sectors that have suffered several years of earnings contraction: financials, consumer-related stocks, utilities and telecoms. Improving fundamentals mean that could change. And, despite some more positive performance recently, they are still undervalued as the chart below shows. There’s still some value to be had in value. 


Current discounts: European sectors vs. 10-yr peaks

Current discount of European Sectors

All other index data: Lyxor ETF, Bloomberg, June 2017.

Disclaimer

The figures relating to past performances refer to past periods and are not a reliable indicator for future results. This also applies to historical market data.
​This communication is for professional clients only. This document is for the exclusive use of investors acting on their own account and categorised either as “Eligible Counterparties” or “Professional Clients” within the meaning of Markets In Financial Instruments Directive 2004/39/EC.

This document is of a commercial nature and not of a regulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale, Lyxor International Asset Management or any of their respective affiliates or subsidiaries to purchase or sell the product referred to herein.

We recommend to investors who wish to obtain further information on their tax status that they seek assistance from their tax advisor. The attention of the investor is drawn to the fact that the net asset value stated in this document (as the case may be) cannot be used as a basis for subscriptions and/or redemptions. The market information displayed in this document is based on data at a given moment and may change from time to time. The figures relating to past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. The potential return may be reduced by the effect of commissions, fees, taxes or other charges borne by the investor. 

Lyxor International Asset Management (Lyxor ETF), société par actions simplifiée having its registered office at Tours Société Générale, 17 cours Valmy, 92800 Puteaux (France), 418 862 215 RCS Nanterre, is authorized and regulated by the Autorité des Marchés Financiers (AMF) under the UCITS Directive and the AIFM Directive (2011/31/EU). Lyxor ETF is represented in the UK by Lyxor Asset Management UK LLP, which is authorised and regulated by the Financial Conduct Authority in the UK under Registration Number 435658.

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