What are the FTSE 100, DAX and CAC 40?
Three Need-to-Know Indices for Global Investors
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, they're comparable to the Dow Jones or S&P 500 in the United States in the sense that 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 holds about a third of the world's wealth by nominal gross domestic product (GDP). Germany is the world’s fourth largest economy, France is the world’s fifth largest economy, and the U.K. is ranked sixth globally, making these markets extremely important for global investors.
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). Investors looking to invest in the FTSE 100 can either purchase foreign 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 Billiton plc (NYSE: BBL)
- GlaxoSmithKline plc (NYSE: GSK)
The DAX 30 is a popular index consisting of Germany’s 30 largest companies trading on the Frankfurt Stock Exchange (FSE). 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: SI)
- BASF SE (PINK: BASFY)
- Bayer AG (PINK: BAYRY)
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 SA (NYSE: TOT)
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 through the index through ETFs or ADRs.
Some popular U.S.-based ETFs tracking the EURO STOXX 50 include:
- SPDR EURO STOXX 50 ETF (NYSE: FEZ)
- iShares EURO STOXX 50 ETF (NYSE: EUE)
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 diversified portfolio of assets in a single security than can be purchased or sold on U.S. exchanges. But it’s important to remember that even diverse ETFs have several risks that investors should consider.
Some popular European ETFs include:
- MSCI European ETF (NYSE: CGK)
- 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.
Investing in these Indexes
Europe represents about a third of the world's stock market capitalization, which makes the 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 portfolio.
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.