The UK'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 U.S., they are a proxy for the broader market.
Europe suffered some setbacks following the sovereign debt crisis of 2010 and 2011. But 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 UK is ranked sixth globally, and France is the world’s seventh-largest economy. This means these markets are very 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 very popular among traders. They are best for those who want reliable, but not extreme, long-term returns without having to make too much effort. The markets of their respective economies are much smaller and made up of different types of firms. This means 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 the three funds includes a unique set of companies.
Britain’s FTSE 100 Index
The FTSE 100 is an index created by the FTSE Group. It represents the 100 most highly capitalized companies in the UK listed on the London Stock Exchange (LSE). U.S. investors looking to invest in the FTSE 100 can purchase foreign Exchange-Traded Funds (ETFs), such as the iShares FTSE 100 (LSE: ISF). Or, they can buy 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 look into buying foreign ETFs, like the iShares DAX 30 ETF (BIT: EXS1). Or, they can buy 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. Most are based in France. Investors looking to buy a piece of the CAC 40 can purchase foreign ETFs, such as the Lyxor CAC 40 ETF (EPA: CAC). Or, they can buy 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 indexes may want to look into European ETFs. These ETFs give an easy way to hold a more diversified portfolio of assets in a single security; it's simpler than what can be bought 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 you with more specific exposure. For instance, some ETFs focus squarely on industrials; others may focus on tech companies. Others may focus on small-, mid-, or large-cap equities in these markets or across broader markets. If you're looking for certain exposure, these may be good options for you.
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.