Stoxx Europe 50 ETFs to drop Credit Suisse and Deutsche Bank following index review

Aug 3rd, 2016 | By | Category: ETF and Index News

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Index provider Stoxx has announced changes to the Stoxx Europe 50 Index, a blue-chip index of mega-cap stocks in Europe accounting for almost 50% of the free-float market capitalization of the European stock market. The move is set to prompt buying and selling activity amongst a range of exchange-traded funds that currently track the index.

STOXX Europe 50 ETFs in focus as index completes review

Effective 8 August 2016, Europe’s banking giants Credit Suisse and Deutsche Bank will be relegated from the STOXX Europe 50 Index.

Effective 8 August 2016, two of Europe’s biggest banks, Credit Suisse and Deutsche Bank, will be relegated from the index, highlighting the troubled period the European financial sector has endured due to lower investment income and higher regulatory costs. These banks currently have index weights of 0.6% and 0.5% respectively.

Confidence in the banking sector has waned in recent months as investors evaluate sector’s ability to generate profit while the economy stalls and central banks adopt negative interest rates. The Stoxx Europe 600 Banks Index is down 28.7% year-to-date.

The index covers 50 stocks from 18 European countries: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. The index is weighted quarterly according to free-float market capitalization with components capped at a maximum of 10% and is reviewed annually.

While components are monitored on an ongoing monthly basis, the index is generally only reviewed annually in September. This non-routine rejig, therefore, is occurring due to the ‘fast-exit’ rule in the index’s methodology. This rule states that companies must be removed if their market capitalization is ranked 75th or below on the index universe selection list for two consecutive months. The deleted components are replaced by the highest-ranking non-component on the monthly selection list.

Replacing the two banks in the index will be technology firm ASML Holding, a Dutch company and currently the largest supplier in the world of photolithography systems for the semiconductor industry; and construction company Vinci, a French concessions and construction firm and the largest construction company in the world by revenue.

Two of the largest UCITS ETFs to track the Stoxx Europe 50 Index are offered by issuers Amundi and iShares. The Amundi ETF Soxx Europe 50 UCITS ETF (Deutsche Boerse: AE50) has over €140m in assets under management (AUM) and a total expense ratio of 0.15%. The iShares STOXX Europe 50 UCITS ETF trades on the Deutsche Boerse in euros (Ticker EUN1) and on the London Stock Exchange in pounds (Ticker: EUN). The fund has over €600m in AUM and has a TER of 0.35%.

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