Euro Stoxx 50 ETFs set for reshuffle

Sep 1st, 2016 | By | Category: Equities

European index provider Stoxx has announced three constituent changes to its flagship Euro Stoxx 50 Index. The substitutions, which come into effect on 19 September 2016, will result in portfolio rebalances for the almost 50 exchange-traded funds that track the index, such as the €6.5bn Lyxor Euro Stoxx 50 UCITS ETF.

Euro STOXX 50 composition change to affect European equity ETFs

Stoxx has announced three changes to the flagship Euro Stoxx 50 Index, underlying reference to almost 50 ETFs.

The Euro Stoxx 50 is the most widely followed gauge of the eurozone equity market. It represents the performance of 50 supersector leaders in 12 eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

The index is weighted by free-float market cap, and each component’s weight is capped at 10% of the index’s total free-float market cap.

The captures capturing approximately 60% of the free-float market cap of the Euro Stoxx Total Market Index, while ensuring a well-balanced representation across the 19 supersectors.

Once the changes take effect, the composition of the index will not change until the next annual review in August 2017, unless companies are ejected or included based on the fast exit and fast entry rules, whereby stocks are removed or accepted if they rank below the 75th security or above the 25th security respectively on monthly selection lists based on market cap.

The three stocks to be added on 19 September are Adidas, Europe’s largest sportswear manufacturer, Netherlands-headquartered Ahold Delhaize, an international food retail group operating supermarkets and e-commerce businesses, and Ireland-based CRH, a manufacturer and supplier of construction materials.

Between 1 September 2015 and 31 August 2016, Adidas shares have more than doubled in value, from €65,55 to €148,64, marking a significant turnaround from the profit warnings issued by the firm just two years ago. The success has been attributed to a change in operational structure which handed a greater deal of influence to brand managers, who now oversee all stages of the product’s life, from design and development to end production. A key promotional partnership with hip hop artist Kanye West also played a role in the firm’s performance.

Ahold Delhaize has surged into the index following the successful €25bn merger in July of the Dutch and Belgian supermarket groups Ahold and Delhaize. The new group has also performed strongly lately in the US, where it derives two thirds of its sales, as strategic price cuts have led to a dramatic increase in market share.

CRH, which was ejected from the Euro Stoxx 50 just two years ago in favour of communication and information technology giant Nokia, has experienced a reversal of fortune as strategic acquisitions made during 2015 begin to bear fruit.

Italian insurer Assicurazioni Generali, Italian banking giant UniCredit as well as French retailer Carrefour are set to be relegated from the index.

The demotion of Assicurazioni Generali and UniCredit reflect the fragility of the Italian financial sector. As growth has stalled to a halt in the country and results of recent stress tests indicate UniCredit would struggle to stay afloat in the event of a financial crisis, a referendum on constitutional change scheduled before the end of the year may be the tipping point which sends the sector spiralling into chaos.

The demotion of the these two Italian firms will trim the country’s contribution to the index, which currently stands at 6.2% (as of 31 August) and reduce the number of Italian names to three. It will also make the index less exposed to Financials, which is currently the largest sector with a weight of 22.3%.

French retailer Carrefour has seen its share price fall 9.06% between 1 January and 30 August 2016. While the retailer seeks to consolidate market position overseas, in China and Brazil for example, Carrefour’s issues in France have included bad weather and strikes, which have severely negatively influenced sales at its hypermarkets.

These changes will soon be reflected in the almost 50 ETFs that track the index, the largest of which are listed below:

The iShares Euro STOXX 50 UCITS ETF (Xetra: EXW1) has around €6bn in assets under management (AUM) and a total expense ratio (TER) of 0.16%.

The Lyxor Euro STOXX 50 UCITS ETF (Euronext: MSE) has over €6.5bn in AUM and a TER of 0.20%.

The db X-trackers Euro STOXX 50 UCITS ETF (Xetra: XESC) has almost €5bn in AUM and a TER of 0.09%.

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