The U.K.’s FTSE 100, Germany’s DAX 30, and France’s CAC 40 are three popular European stock market indexes. In many ways, like the Dow Jones or S&P 500 in the United States, they are a proxy for the broader market.
While Europe has suffered some setbacks following the sovereign debt crisis of 2010 and 2011, the region still ranks third in global wealth by gross domestic product (GDP). Based on 2019 GDP, Germany is the world’s fourth-largest economy, the U.K. is ranked sixth globally, and France is the world’s seventh-largest economy, making these markets extremely important for global investors.
What Are the FTSE 100, DAX, and CAC 40?
As index funds that largely follow the trends of their respective markets, these three major European stock indexes are extremely popular among traders who want reliable—but not extreme—long-term returns without having to make too much effort. Because the markets of their respective economies are much smaller and made up of different types of companies, the FTSE 100, DAX 30, and CAC 400 generally don't grow as quickly as the S&P 500.
How the FTSE 100, DAX, and CAC 40 Work
Each of these three European funds includes a unique set of companies.
Britain’s FTSE 100 Index
The FTSE 100 is an index created by the FTSE Group that represents the 100 most highly capitalized companies in the U.K. listed on the London Stock Exchange (LSE). U.S. investors looking to invest in the FTSE 100 can either purchase foreign Exchange-Traded Funds (ETFs), such as the iShares FTSE 100 (LSE: ISF) or purchase individual components in the FTSE 100 using American Depository Receipts (ADRs).
Popular companies in the FTSE 100 include:
- BP plc (NYSE: BP)
- BHP Group plc (NYSE: BBL)
- GlaxoSmithKline plc (NYSE: GSK)
Germany’s DAX 30 Index
The DAX 30 is a popular index consisting of Germany’s 30 largest companies trading on the Frankfurt Stock Exchange (FSE). U.S. investors looking for exposure to the DAX 30 index can consider purchasing foreign ETFs, like the iShares DAX 30 ETF (BIT: EXS1), or purchasing individual components in the DAX 30 using ADRs.
Popular companies in the DAX 30 include:
- Siemens AG (NYSE: SIEGY:US)
- BASF SE (PINK: BASFY)
- Bayer AG (PINK: BAYRY)
France’s CAC 40 Index
The CAC40 is France’s largest index and consists of its 40 largest companies, of which the majority are domiciled in France. Investors looking to buy a piece of the CAC 40 can either purchase foreign ETFs, such as the Lyxor CAC 40 ETF (EPA: CAC), or purchase individual components of the CAC 40 in the form of ADRs.
Popular companies in the CAC 40 include:
- Sanofi (NYSE: SNY)
- ArcelorMittal (NYSE: MT)
- Total (NYSE: TOT)
Investing in Europe Using ETFs
Investors looking to invest in Europe outside of these three major indices may want to consider European ETFs. These ETFs give investors an easy way to hold a more diversified portfolio of assets in a single security than can be purchased or sold on U.S. exchanges.
Some popular European ETFs include:
- MSCI European ETF (NYSE: IEUR)
- iShares S&P Europe 350 Index Fund (NYSE: IEV)
- SPDR DJ Euro STOXX 50 ETF (NYSE: FEZ)
There are many other ETFs focused in Europe that can provide investors with more specific exposure. For example, some ETFs focus squarely on industrials while others may focus on technology companies. Others may focus on small-, mid-, or large-cap equities in these markets or across broader markets. If you're looking for specific exposure, these may be good options to consider.
It’s important to remember that even diverse ETFs have several risks that investors should consider. You should always examine the specific stocks included in an ETF and understand the projected risks before you invest.
Alternative to FTSE 100, DAX, and CAC 40
The EURO STOXX 50 is a leading index of Europe’s 50 largest blue-chip companies that span 12 eurozone economies. The Deutsche Borse, Dow Jones, and SWX Group maintain the index and select its components based on a number of different criteria. Investors can gain exposure to the index with ETFs or ADRs.
Investing in European Indexes
Europe represents a significant portion of the world's stock market capitalization, which makes its markets an important destination for international investors. In addition to purchasing some of the component stocks, U.S. investors can look into ETFs focused on these indexes or other European-focused ETFs with exposure to the same or similar end markets.
Of course, investors should consider the risks associated with these investments before purchasing them, including the geopolitical risks associated with the eurozone, liquidity risks stemming from American Depositary Receipts, and the expense ratios for any ETFs, as well as the concentration risks stemming from any of these individual portfolios.
Investors may want to consider adding these European indexes and ETFs as part of a diversified portfolio to mitigate any regional risk factors and maximize long-term risk-adjusted returns.
- The FTSE 100, DAX 30, and CAC 40 are three popular European stock market indexes.
- Like the S&P 500 or the Dow Jones, each fund includes various differently sized companies in order to perform close to the index.
- U.S. investors looking for international exposure can look to any of these funds, as well as European ETFs and ADRs, to create a diverse portfolio.