The CAC 40 Index is main national stock exchange of France. The components of the index are found on Euronext, the cross-border European stock exchange. CAC 40 (which stands for Cotation Assistee en Continu or “continuous assisted trading”) is used as a benchmark index for funds investing in the French stock market. The index is also used to give investors a snapshot of the broader market conditions of the Euronext Paris, which is the largest stock exchange in Paris.
The CAC 40 is a market-cap weighted index of 40 of the 100 companies with the highest market cap on the Euronext. In this way, the CAC 40 closely approximates the Dow Jones Industrial Average. That is like the Dow in the United States, the CAC 40 is the most commonly used index to analyze the overall level and direction of the French market.
Introduction
The CAC 40 index represents the 40 largest equities listed on the Euronext Paris. The companies selected for the CAC 40 are chosen based on market capitalization and liquidity. The CAC 40 currently includes such well-known companies as L’Oreal, Renault, and Michelin. In this article, we’ll take a close look at the CAC 40 Index including a look at how the components of the index are selected, how the sectors in the index are weighted and how investors can invest in the CAC 40 Index.
What is the CAC 40 Index?
The CAC 40 Index is the French equivalent to the Dow Jones Industrial Index (DJIA). It is made up of the 40 largest equities in France based on market capitalization and liquidity. Unlike the Euro STOXX Index, the CAC 40 is made up almost exclusively of French companies. However, it has a multinational reach that makes it a popular avenue for foreign investors to get exposure to the European market.
The CAC 40 made its debut on December 31, 1987. Its base value was 1,000. The index peaked during the dot-com bubble soaring up to a peak of nearly 7,000. However, it fell after that and hit around 3,000 during the economic crisis of 2011. Today it is over 5,000 despite softness in the European economy.
For investors looking to trade more targeted areas of the French economy, there are other indexes that have spun off the CAC 40 including the CAC Next 20 and the CAC Mid 60.
How are the components for the CAC 40 index chosen?
The CAC 40 is a dynamic index. The composition of the index is subject to a quarterly review by the Conseil Scientifique, an independent committee that ranks the top companies in terms of market capitalization and shares turnover over the past year. The companies must be listed on the Euronext Paris. Out of the top 100 companies, the committee narrows it down to forty companies that are considered to provide the most relevant benchmark for portfolio management and suitable underlying assets for derivative products. If a company has more than one class of shares traded on the exchange, only the most actively traded of these will be accepted into the index.
Some of the notable components of the CAC 40 include:
- Total SA NYSE: TOT
- Sanofi NYSE: SNY
- BNP Paribas SA EPA: BNP
- France Telecom NYSE: FTE
- Societe Generale OTC: SCGLY
- ArcelorMittal NYSE: MT
.What sectors are represented in the CAC 40 index?
Here are the current sectors that are part of the CAC 40 Index with their current weighting. As you can see, the Industrials sector is the largest in terms of percentage taking up nearly one-quarter of the index. Real estate, by contrast, is the smallest segment which is fairly typical of indexes such as these.
- Basic Materials - 06%
- Consumer-Cyclical – 16.76%
- Financial Services - 32%
- Real Estate - 49%
- Consumer Defensive - 22%
- Healthcare -51%
- Utilities - 2.13%
- Communication Services - 40%
- Energy - 92%
- Industrials - 00%
- Technology - 18
How can investors invest in the CAC 40 Index?
A common way to invest in the CAC 40 Index is through one of many exchange-traded funds (ETFs) that trade on the NYSE Euronext Paris. Five of the most popular ETFs are:
- Lyxor CAC 40 ETF
- Amundi CAC 40 ETF
- EasyETF CAC 40 ETF
- DBXT CAC 40 ETF
- HSBC CAC 40 ETF
Investors can choose to invest directly in any of the individual components of the index using American Depository Receipts (ADRs) or by simply purchasing the stock directly on the Euronext Paris Exchange. However, buying stocks directly on the Euronext exchange may have tax implications, currency risks along with other risks. ADRs come with their own set of risks, primarily liquidity risks when compared to buying the individual security.
For investors that are looking for mutual funds or ETFs that have exposure to France but are not directly linked to the CAC 40, there are several options. One of the easiest and most direct of these is the iShares MSCI France Index EFT NYSE: EWQ. However, there are many other options that can give investors exposure to French securities. Three popular alternatives are:
- MSCI European ETF NYSE: VGK
- iShares S&P Europe 350 Index Fund NYSE: IEV
- SPDR DJ Euro STOXX 50 ETF NYSE: FEZ
The final word on the CAC 40 index
Europe is still struggling to recover from the sovereign debt crisis that swept over the continent in 2010 and 2011. However, the region still accounts for approximately one-third of global wealth based on the nominal gross domestic product (GDP). France is the world’s fifth-largest economy and therefore is worthy of consideration for investors. The most direct way to invest in French companies is to invest in a mutual fund or ETF that tracks the CAC 40
The CAC 40 is the French equivalent of the Nikkei (Japan), the Hang Seng (Hong Kong) and the Dow (United States). The index tracks 40 of the largest French stocks based on their market capitalization on the Euronext Paris.
The components and weighting of the index are reviewed and adjusted quarterly. At each review, the committee considers factors such as the free-float market capitalization and share turnover from the previous year. After that the committee chooses 40 from the top 100.
If a company's CEO, COO, and CFO were all selling shares of their stock, would you want to know?
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