EURO STOXX 50 turns 20 as ETF-linked assets top $40bn

Mar 8th, 2018 | By | Category: Equities

Zurich-based index provider STOXX has celebrated the twentieth anniversary of the launch of the bellwether EURO STOXX 50 Index.

Over $40bn in Euro STOXX 50 ETFs as blue-chip index turns 20

The EURO STOXX 50 tracks the performance of 50 supersector leaders listed in the eurozone.

The index, which preceded the introduction of the euro by 10 months, is considered the de factor performance benchmark for blue-chip euro zone stocks.

It is also one of the most widely tracked indices, with around $40 billion in ETF assets referenced to it.

Unveiled at the end of February 1998, the index covers 50 mega-cap stocks from 11 euro zone countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

The index methodology is not as straightforward as is often perceived. It follows a three-step process:

1. For each of STOXX’s 19 EURO STOXX Supersector indices (with companies categorized according to their primary source of revenue based on ICB nomenclature), the stocks are ranked in terms of free-float market capitalization. The largest stocks are added to the selection list until the coverage is close to, but still less than, 60% of the free-float market capitalization of the corresponding supersector index. If the next highest-ranked stock brings the coverage closer to 60% in absolute terms, then it is also added to the selection list. All current EURO STOXX 50 stocks are also added to the selection list.

2. All the stocks on the selection list are then ranked in terms of free-float market capitalization to produce the final index selection list.

3. The largest 40 stocks on the selection list are selected; the remaining 10 stocks are selected from the largest remaining current stocks ranked between 41 and 60; if the number of stocks selected is still below 50, then the largest remaining stocks are selected until there are 50 stocks. Stocks are weighted according to free-float market capitalization.

The largest ETF to track the index is the $11.0bn iShares EURO STOXX 50 UCITS ETF (CSX5 LN), which costs 0.16% per annum in fees.

The cheapest ETFs are the Source EURO STOXX 50 UCITS ETF (SX5S LN) and the HSBC EURO STOXX 50 UCITS ETF (H50E LN), each charging just 0.05%. Despite their lower costs, SX5S and H50E have assets under management of $480 million and $170m, respectively, and consequently do not offer the same degree of liquidity as the iShares fund.

Looking back over the history of the index, Matteo Andreetto, chief executive officer at STOXX, said: “Since its inception, the EURO STOXX 50 experienced some notable market moments marked by critical highs and lows. The tech boom at the end of the 1990s recorded an all-time high for the EURO STOXX 50, but also ended up causing its first bear market. The 2008 credit crisis saw banks implode, financial shares tumble, and policymakers step in to limit the ensuing recession. After 2010, the euro debt crisis further rattled economic data and shook investors, but was met with a concerted political effort to strengthen the ever-deeper union.

“Throughout the ups and downs, the EURO STOXX 50 closely tracked the development of the euro zone’s largest companies, and became the undisputed market benchmark.”

– Matteo Andreetto, chief executive officer at STOXX.

“Throughout the ups and downs, the EURO STOXX 50 closely tracked the development of the euro zone’s largest companies, and became the undisputed market benchmark.”

Twenty years after its birth, the index has seen 13 separate index families branch off from the parent EURO STOXX 50. These include equally weighted, fixed-income, multi-asset, low volatility, risk-control and sustainability strategies.

The introduction of the index also marked the beginning of STOXX itself which, over the course of 20 years, has undergone a remarkable expansion. The firm now publishes more than 12,000 indices globally across all asset classes. Approximately 25% of assets under management in Europe are based on STOXX indices.

While such growth is clearly impressive, Andreetto notes the most striking transformation has been to the essence of the products on offer and the role the company provides to investors.

He said, “From multi-factor to multi-asset solutions, to an ever-growing sustainability & ESG family, thematic indices and select diversification solutions, each index addresses a specific need. This year we introduced the STOXX AI Global Artificial Intelligence Index, the first thematic index to select its constituents by means of computer-science technology.”

Highlighting the strong growth in popularity of passive investment vehicles such as ETFs due to their simplicity and cost advantages, Andreetto believes the expanding functionalities of indices is likely to continue lifting these vehicles to new grounds in terms of trading volumes and assets under management.

“With artificial intelligence taking over more tasks in financial services, we foresee the role, construction and uses of indices will keep changing,” he said. “‘Smart’ index solutions will be the driver of growth for STOXX, with the definition of what constitutes ‘smart’ rewritten on a daily basis.”

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