What is the EURO STOXX 50?
The European Equivalent of the Dow Jones 30
The EURO STOXX 50 is a leading index of Europe's blue chip companies owned by the Deutsche Borse, Dow Jones and SWX Group. Similar to the Dow Jones 30 index in the U.S., the EURO STOXX 50 includes 50 blue chip stocks across 12 eurozone countries. International investors can trade the index via exchange-traded funds (ETFs), futures contracts and stock options.
Components of the EURO STOXX 50 index are selected based on a number of criteria and weighted according to free-float market capitalization. Index members are also reviewed annually in September in order to ensure a transparent and up-to-date basket.
In this article, we will take a look at how to invest in the EURO STOXX 50 with ETFs, popular trading strategies for the leading index, and some alternatives that investors may want to consider.
Invest in EURO STOXX 50 with ETFs
Exchange-traded funds (ETFs) represent the easiest way to invest in the EURO STOXX 50. Unlike mutual funds, ETFs can be bought and sold like traditional stocks and usually have lower management fees. More advanced investors can also purchase call or put options on the ETF in order to speculate or hedge.
The two most popular EURO STOXX 50 ETFs are:
- SPDR EURO STOXX 50 ETF (NYSE: FEZ)
- iShares EURO STOXX 50 ETF (NYSE: EUE)
Alternatively, advanced investors can purchase EURO STOXX 50 index futures or options directly through the certain exchanges like the Eurex. Index futures (Symbol FESX) can be purchased for up to nine months, while index options (Symbol OESX) can be purchased up to 119 months.
EURO STOXX 50 Trading Strategies
The EURO STOXX 50 is a very popular index for speculative traders and geopolitical investors, since the market views it as a critical gauge of Europe's overall health. As a result, many traders and investors buy and sell the stock as a way to speculate on Europe's overall economic health.
Here are some common trading strategies for the EURO STOXX 50:
- Very Bullish. Consider purchasing out-of-the-money call options on EURO STOXX 50 ETFs in order to apply maximum leverage towards any upside.
- Bullish. Consider purchasing EURO STOXX 50 ETFs and perhaps protective puts on the ETFs in order to limit any potential downside.
- Bearish. Consider short-selling EURO STOXX 50 ETFs or purchasing at-the-money puts that appreciate when the ETFs' price declines.
- Very Bearish. Consider purchasing out-of-the-money puts on EURO STOXX 50 ETFs in order to apply maximum leverage towards any downside.
When trading with stock options, investors should remember that they can lose their entire investment. Moreover, investors may be required to apply to short sell (e.g. margin trade), trade options or trade futures with their brokers due to their increased risk.
Alternatives to the EURO STOXX 50
International investors looking for exposure to more than just the 50 stocks on the EURO STOXX 50 index have several alternatives. Several indices and ETFs offer similar to expanded exposure to Europe, while international investors can also build their own portfolio of foreign stocks.
Some popular indices include:
- S&P Euro & Euro 350 Indices
- MSCI Europe Large Cap & EMU Indices
Some popular European ETFs trading these indices include:
- Vanguard MSCI Europe ETF (NYSE: VGK)
- iShares S&P Europe 350 Index (NYSE: IEV)
- iShares MSCI EMU Index (NYSE: EZU)
Investors can also purchase many large individual European stocks on U.S. exchanges via American Depository Receipts (ADRs). These securities can be bought and sold like traditional stocks, but may have less liquidity than most U.S. blue chip stocks.
Some popular European ADRs include large companies like:
- Nokia Corporation (NYSE: NOK)
- Banco Santender SA (NYSE: STD)
- ArcelorMittal (NYSE: MT)
Key Points to Remember about EURO STOXX 50
- The EURO STOXX 50 index is comprised of 50 large companies located in 12 eurozone countries and is similar to the Dow Jones 30 in the United States.
- The EURO STOXX 50 index is often used as a barometer of Europe's economy, which means there are many trading strategies available.
- There are many viable alternatives to the EURO STOXX 50 index, ranging from ETFs to ADRs, that investors can consider.