CAC 40 Index (France)

The CAC 40 Index is the French equivalent to the Dow Jones Industrial Index (DJIA). It is made up of the 40 largest equities in France based on market capitalization and liquidity. Unlike the Euro STOXX Index, the CAC 40 is made up almost exclusively of French companies. However, it has a multinational reach that makes it a popular avenue for foreign investors to get exposure to the European market.

The CAC 40 made its debut on December 31, 1987. Its base value was 1,000. The index peaked during the dot-com bubble soaring up to a peak of nearly 7,000. However, it fell after that and hit around 3,000 during the economic crisis of 2011. Today it is over 5,000 despite softness in the European economy.

For investors looking to trade more targeted areas of the French economy, there are other indexes that have spun off the CAC 40 including the CAC Next 20 and the CAC Mid 60.

The CAC 40 is a dynamic index. The composition of the index is subject to a quarterly review by the Conseil Scientifique, an independent committee that ranks the top companies in terms of market capitalization and shares turnover over the past year. The companies must be listed on the Euronext Paris. Out of the top 100 companies, the committee narrows it down to forty companies that are considered to provide the most relevant benchmark for portfolio management and suitable underlying assets for derivative products.  If a company has more than one class of shares traded on the exchange, only the most actively traded of these will be accepted into the index.

Some of the notable components of the CAC 40 include:

• Total SA (NYSE:TOT)
• Sanofi (NYSE:SNY)
• BNP Paribas SA (EPA:BNP)
• France Telecom (NYSE:FTE)
• Societe Generale (OTC:SCGLY)
• ArcelorMittal (NYSE:MT)

.What sectors are represented in the CAC 40 index?

Here are the current sectors that are part of the CAC 40 Index with their current weighting. As you can see, the Industrials sector is the largest in terms of percentage taking up nearly one-quarter of the index. Real estate, by contrast, is the smallest segment which is fairly typical of indexes such as these.

• Basic Materials - 06%
• Consumer-Cyclical – 16.76%
• Financial Services - 32%
• Real Estate - 49%
• Consumer Defensive - 22%
• Healthcare -51%
• Utilities - 2.13%
• Communication Services - 40%
• Energy - 92%
• Industrials - 00%
• Technology - 18

A common way to invest in the CAC 40 Index is through one of many exchange-traded funds (ETFs) that trade on the NYSE Euronext Paris. Five of the most popular ETFs are:

• Lyxor CAC 40 ETF
• Amundi CAC 40 ETF
• EasyETF CAC 40 ETF
• DBXT CAC 40 ETF
• HSBC CAC 40 ETF

Investors can choose to invest directly in any of the individual components of the index using American Depository Receipts (ADRs) or by simply purchasing the stock directly on the Euronext Paris Exchange. However, buying stocks directly on the Euronext exchange may have tax implications, currency risks along with other risks. ADRs come with their own set of risks, primarily liquidity risks when compared to buying the individual security.

For investors that are looking for mutual funds or ETFs that have exposure to France but are not directly linked to the CAC 40, there are several options. One of the easiest and most direct of these is the iShares MSCI France Index EFT (NYSE:EWQ). However, there are many other options that can give investors exposure to French securities. Three popular alternatives are:

• MSCI European ETF (NYSE: VGK)
• iShares S&P Europe 350 Index Fund (NYSE: IEV)
• SPDR DJ Euro STOXX 50 ETF (NYSE: FEZ)