Published on 16.02.2024
The EURO STOXX 50 index includes the fifty most valuable companies in the eurozone.
The EURO STOXX 50 is one of the key indicators of the state of the European stock market. The index consists of the fifty largest publicly traded companies in the eurozone, including many well-known European brands. Due to the high tradability of the underlying stocks, numerous financial products are based on the EURO STOXX 50, such a options, futures and ETFs (exchange-traded funds). The index is also widely used as a benchmark for investors to compare the performance of their personal investment portfolios.
The index was developed by STOXX Limited, a subsidiary of Deutsche Börse Group, and was launched in early 1998. According to STOXX, the index represents the major publicly traded companies (‘blue chips’) in the largest sectors of the eurozone, known as supersector leaders.
The EURO STOXX 50 is a market capitalisation-weighted index, where the market value determines the weight of each individual stock in the index. Market value is obtained by multiplying the number of outstanding shares by the current price. Stocks with a larger market capitalisation have a higher weighting in the index compared to those with smaller market capitalisations. Additionally, a correction is made based on the number of freely tradable shares, known as the free float. Shares that are not freely tradable are not included in determining the market value. Consequently, only the fifty largest and most liquid stocks are included in the EURO STOXX 50. Also, the weight of an individual stock is limited to 10%.
The EURO STOXX 50 represents 60% of the free float market capitalisation of the EURO STOXX Total Market Index (TMI). The value of the index is calculated by summing up the free float market capitalisation of all the stocks in the index and dividing it by the divisor. The divisor ensures that the value of the EURO STOXX 50 does not become excessively large. It also neutralises the impact of corporate actions such as special cash dividends, spin-offs or rights issues.
Index = free-float market capitalisation of the index⁄divisor
STOXX has its own sector classification system with 19 supersectors, 41 sectors and 114 subsectors. The selection list for the EURO STOXX 50 consists of the largest stocks (by free float) from the 19 EURO STOXX supersectors, including technology, oil & gas, telecom, healthcare and retail. The composition of the index is reviewed annually in September.
The EURO STOXX 50 is a price index, meaning that dividend payments by companies are not considered when calculating the index value. The ticker symbol for the euro price index is SX5E. The index started on February 28, 1998, with a value of 1000.
To calculate the total return of the EURO STOXX 50, a total return index is also available. It reinvests dividends in the calculation.
In addition to the euro, the index is available in other currencies, including the US dollar, British pound, Japanese yen, Canadian dollar and Australian dollar.
In April 2019, the EURO STOXX 50 ESG was launched, which considers sustainability criteria in the stock selection process.
There are several ways to invest in the EURO STOXX 50. You can, of course, purchase a basket of the 50 stocks in the index yourself, but this can be cumbersome and may involve higher transaction costs. If you want to invest in the EURO STOXX 50 all at once, you can do so easily through futures and ETFs. In fact, the EURO STOXX 50 is the most popular index for ETFs in Europe. iShares introduced the first ETF on this index, the iShares Core EURO STOXX 50, in April 2000. The iShares ETF alone has over €4 billion in assets and is one of the largest in its category. Almost all ETF providers offer an ETF on the EURO STOXX 50, including Lyxor, Xtrackers and SPDR.
When you invest in the EURO STOXX 50 through futures contracts, the index serves as the underlying asset. The value of the future is naturally based on the price of the EURO STOXX 50. EURO STOXX 50 futures on the German derivatives exchange Eurex are among the most liquid index derivatives in the world and are therefore popular among investors. Investing in futures can be profitable but also carries a high risk. You may end up losing more than your initial investment. We recommend that you only invest in financial products that align with your knowledge and experience.
The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written. Investing involves risks (e.g price volatility, currency or liquidity risk). You can lose your invested funds. Consider your knowledge and experience when making investment decisions. Past performance is not a reliable indicator of future results. Markets are volatile and can fluctuate significantly due to economic, political, regulatory, or other developments.
Sources: Investopedia, Bloomberg, Investing.com
Investing involves risks. You can lose (a part of) your invested funds. We advise you to only invest in financial products which match your knowledge and experience. This is not investment advice.
Investing involves risks.
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