CAC 40 - how to invest in French blue chip companies [Guide]
Investors starting their adventure with the European capital market usually focus on analyzing the behavior of indices DAX 30, 100 FTSE and STOXX 50. However, indices representing French companies must not be forgotten. Keep in mind that France is one of the largest European economies, strongly associated with the German economy. The index that allows you to track the condition of French companies is CAC 40 (Cotation Assistée en Continu quarante), which groups the largest and most liquid companies listed on the Paris Stock Exchange. The last 5 years have been average for the index. The annualized 5-year rate of return on the index was 6,71%.
The base value for the index was 1000 points (December 31, 1987). Publication of the index began on June 15, 1988. Until 2003, the index was calculated based on market capitalization. Then the calculation started based on the free float-adjusted market capitalization methodology. The CAC 40 is one of the "national" indices quoted in the Euronext pan-European alliance, which groups the stock exchanges in Amsterdam, Brussels, Paris, Lisbon, Milan, Oslo and Dublin.
The CAC 40 index shows the condition of the largest French companies. For this reason, the financial results of companies depend on the condition of the global economy. As a rule, these companies have geographically diversified businesses, co it allows you to become independent only from the condition of the French economy.
Index composition
According to data provided by Euronext, the CAC 40 index has 40 components. At the end of March 2021, the dividend yield of this index was 2,32%. On March 31, 2021, the largest component of the CAC 40 had a capitalization of €286,75 billion. The median value of companies included in the index was €31,40 billion. In turn, the average capitalization was worth €49,44 billion.
The index is quite concentrated. The 10 largest components of the index accounted for over 55% of the weight of the entire index. The biggest is LVHM with 11,25% share in the entire index.
The index is very well diversified in terms of economic sectors. They have the largest shares companies from the clothing industryAnd accessories (over 13%). The following 5 sectors have a share of over 6% in the index: electronics, oil and gas, pharmaceuticals, aviation and banki.
Chart
The CAC 40 index is dominated by companies related to the discretionary goods segment (e.g. luxury goods), which account for over 24% of the index. Companies from the industrial sector are also strong (e.g. Airbus, Schneider Electric), which represent over 21% of the index.
At the end of Q2021 XNUMX, the following companies are the largest components of the index:
- LVMH - 11,25%,
- Total - 7,15%,
- Sanofi - 6,81%,
- L'Oreal - 5,87%,
- Schneider Electric - 5,00%.
Below is a brief description of some of the companies included in the CAC 40 index.
LVMH
LVMH Moët Hennessy Louis Vuitton, is the largest component of the CAC 40 index. It is an international corporation that specializes in the production and sale of luxury goods. The company's seat is in Paris. The company was established in 1987 as a result of the merger of Louis Vuitton (established in 1854) and Moët Hennessy (resulting from the merger of the Moët & Chandon champagne producer and the Hennessy cognac producer). LVMH has many interesting brands in its portfolio. These are i.a. Louis Vuitton, Christian Dior, Bulgari, Tiffany, Zenith or Emillio Pucci. He controls the company Bernard Jean Etienne Arnaultwho is one of the richest people in the world. The current capitalization of the company exceeds €317 billion.
€ million | 2017 | 2018 | 2019 | 2020 |
revenues | 42 636 | 46 826 | 53 670 | 44 650 |
Operational profit | 8 299 | 9 985 | 11 372 | 8 311 |
Operating margin | 19,46% | 21,32% | 21,19% | 18,61% |
Net profit | 5 129 | 6 354 | 7 171 | 4 702 |
Source: own study
L'Oreal
It is one of the most famous companies related to the care and cosmetics industry. The company divides its activities into 4 segments: L'Oreal Luxe, consumer products, active cosmetics and products for professionals. The first two segments have the largest share in revenues, accounting for over 75% of the company's sales. The brands belonging to the company include, among others L'Oreal, Lancome, Garnier or Maybelline. Most of the brands of the French corporation have been acquired. An example is Maybelline, who found its way to the "L'Oreal portfolio" in 1996 for $ 660 million. In turn, the French company Garnier was taken over by L'Oreal in the 70s. It is also worth noting that L'Oreal signs license agreements with other luxury brands. An example is the license agreement signed at the end of 2019 between L'Oreal and Prada for the development, production and distribution of "beauty" products under the Prada brand. L'Oreal's capitalization is € 196 billion.
€ million | 2017 | 2018 | 2019 | 2020 |
revenues | 26 024 | 26 937 | 29 874 | 27 992 |
Operational profit | 4 676 | 4 922 | 5 548 | 5 139 |
Operating margin | 17,97% | 18,27% | 18,57% | 18,36% |
Net profit | 3 581 | 3 895 | 3 750 | 3 563 |
Source: own study
Danone
It is a French producer of food and beverages. Although the company's headquarters is currently in Paris, the company was founded in Barcelona in 1919. Danone operates in the market of dairy and grain products (more than half of revenues), has a segment of "water" and specialist products (including for children). The company sells its products in over 120 countries around the world and employs over 100 people in 000 countries around the world. The largest markets for Danone (in terms of sales) are the United States, China and France. The company's brands include Activia, Actimel, Evian, Żywiec Zdrój, Aptamil or Danone. The company's capitalization is currently around € 55bn.
€ million | 2017 | 2018 | 2019 | 2020 |
revenues | 24 677 | 24 651 | 25 287 | 23 620 |
Operational profit | 3 729 | 2 697 | 3 805 | 3 335 |
Operating margin | 15,11% | 10,94% | 15,04% | 14,11% |
Net profit | 2 453 | 2 349 | 1 915 | 1 941 |
Source: own study
Hermes
It is another company from the "luxury goods" industry. The history of Hermes dates back to 1837, when a company producing accessories for equestrianism and horse transport was founded. The company mainly specializes in leather products. However, over the years, it has significantly diversified its activities. Currently, it also operates in the segment of perfumes, jewelery, watches and accessories (glasses, etc.). At the end of 2020, the company had over 300 stationary stores, most of which were in Asia (121). Interestingly, the company does not have any stationary store in Africa. Hermes, however, is aware of the changing reality. As a result, he collaborates With Apple Lossless Audio CODEC (ALAC), offering the Apple Watch Hermes. The capitalization of the French company is €112 billion.
€ million | 2017 | 2018 | 2019 | 2020 |
revenues | 5 549 | 5 966 | 6 883 | 6 389 |
Operational profit | 1 964 | 2 088 | 2 367 | 2 036 |
Operating margin | 35,39% | 35,00% | 34,39% | 31,87% |
Net profit | 1 222 | 1 405 | 1 528 | 1 385 |
Source: own study
Kering
The history of the company dates back to 1963 and it dealt with ... wood trade. The then name of the company was Pinault SA The company made its debut in 1988 on the Paris Stock Exchange. Two years after its debut, the company entered the retail segment (including Conforama). However, the real change came in 1999 when the company bought a 42% stake in Gucci. As a result, the company focused on the development of the luxury goods segment. This was confirmed by subsequent acquisitions: Girard-Perregaux (watches), Brioni (clothing) and Pomellato (jewelry). Kering is therefore another representative of the luxury goods segment. The corporation is the owner of, among others brands such as Gucci, Yves Saint Laurent and Bottega Veneta or Balenciaga. The company's capitalization is € 86bn.
€ million | 2017 | 2018 | 2019 | 2020 |
revenues | 15 478 | 13 665 | 15 884 | 13 100 |
Operational profit | 2 948 | 3 944 | 4 778 | 3 135 |
Operating margin | 19,05% | 28,86% | 30,08% | 23,93% |
Net profit | 1 786 | 3 715 | 2 309 | 2 150 |
Source: own study
Pernod Ricard
The company focuses on the alcohol market. It is quite a young company since its history dates back to 1975. The company was created as a result of the merger of two eternal rivals: Pernod (established in 1797) and Ricard (established in 1932). Pernod Ricard has a very wide portfolio of brands, both spirits (whiskey, vodka) and wine. The company's brands include Ballantine's, Martell, Chivas, Olmeca, Absolut (vodka), Ricard, Malibu, and Brancott Estate wines. Pernor Ricard employs nearly 19 people. The company is quite present on the Polish market, in addition to the Absolut brand, it also has Wyborowa, Luksusowa, Pan Tadeusz and Siwucha. The company's capitalization exceeds € 000 billion.
$ Million | 2017 | 2018 | 2019 | 2020 |
revenues | 9 009 | 8 986 | 9 182 | 8 447 |
Operational profit | 2 409 | 2 379 | 2 548 | 2 197 |
Operating margin | 26,73% | 26,47% | 27,75% | 26,00% |
Net profit | 1 393 | 1 577 | 1 455 | 329 |
Source: own study
Capgemini
It is a company that offers consulting, information technology and outsourcing services. Capgemini helps its clients, incl. in digital transformation or implementation of a new strategy. The company employs over 270 people in 000 countries, of which approximately 50 are in India. Presence in India allows you to reduce human costs, which allows you to offer your services at more attractive prices. Capgemini was founded in 120 as Sogeti. A milestone was the acquisition of CAP and Gemini in the mid-000s. After the acquisitions, the company changed its name to CAP Gemini Sogeti. After 1967 years, the name of the company was shortened to CAP Gemini. The company's capitalization is € 70 billion.
$ Million | 2017 | 2018 | 2019 | 2020 |
revenues | 12 792 | 13 197 | 14 125 | 15 848 |
Operational profit | 1 352 | 1 411 | 1 565 | 1 758 |
Operating margin | 10,57% | 10,69% | 11,08% | 11,09% |
Net profit | 820 | 730 | 856 | 957 |
Source: own study
What may affect the value of the CAC 40 index?
The condition of the French and world economy
The components of the CAC 40 index are mainly multinational corporations that are very geographically diversified. That's why it's worse the health of the French economy has less impact on financial performance than a slowdown in the global economy. However, it should be remembered that for many companies, France is still one of the largest markets (Danone).
Financial results of companies
In the long term, the main driver of the share value growth is the improvement of the company's financial results and an increase in the scale of operations. Increasing revenues, net profits and free cash flow (FCF) are the key arguments for increasing the intrinsic value of the company. This, in turn, translates into an increase in the value of the shares. For this reason, a long-term investor should monitor the financial performance of the companies included in the index.
Central bank policy
The CAC 40 index, in the short term, may also be affected by ECB policy (European Central Bank). An increase in interest rates will have a negative impact on the "multipliers" of companies included in the index. However, it should be remembered that for the long-term investor, short-term fluctuations in valuations are of marginal importance.
How can you trade the CAC 40 index
CAC 40 Futures
The investor can gain exposure to the index through futures contracts. CAC 40 is one of the most liquid European equity index futures.
One point is worth €10. With the current value of the index - 6385 points, this gives a nominal contract value of €63.
You can trade indices expiring in the next 3 months and "quarterly" (March, June, September, December). The indices expire on the third Friday of the contract execution month. Delivery is made through the price difference.
From 2013 also introduced versions "Mini" of said index. This was because many novice investors did not have the capital to trade a "normal" contract. The value of 1 point is € 1, which meant that the contract value at the current price was € 6385. The investor has access only to the next 3 months of contract expiration. However, it is not a very popular futures contract. As of May 7, the number of open contracts (LOP) for the May series is 31. For comparison, a "normal" May contract has LOP at the level of 310 pieces.
This is one of the easiest ways to invest in the CAC 40 index. However, due to the large face value (1 point is worth €10), many investors are forced to look for alternatives with a lower entry threshold. You can invest in mini futures, but they have less liquidity than a "standard" contract.
CFD on CAC 40
Traders can also speculate on the price of the CAC 40 index on brokerage platforms by buying and selling CFDs (for price difference) in real time. CFDs offer traders a leverage that allows you to engage only a fraction (typically 5% / leverage 1:20 for this instrument) of the margin required.
Popular brokers offering CAC40
Below is a list of the most popular ones Forex brokers offering the best conditions for CFDs on the French Stock Index.
Broker | |||
End | Poland | Great Britain / Cyprus | Great Britain |
CAC 40 symbol | FRA40 | CAC40 | FRANCE40 |
Min. Deposit | PLN 0 (recommended min. PLN 2000 or USD 500, EUR) |
200 USD | PLN 100 |
Min. Lot value | price * 10 EUR | price * 1 EUR | price * 1 EUR |
Commission | - | - | - |
Platform | xStation | MT5 | MT4, MT5 |
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.
CAC 40 options
Trading is also possible index options CAC 40. They have a European style of execution and their face value is equal to the value of a futures contract on CAC 40 (multiplier 10€). It is possible to trade both monthly options (the next 3) and quarterly expiration options (currently until March 2023). At the same time, there are options expiring in December in 2024 and 2025.
Saxo Bank is one of the few Forex brokers that offers vanilla options. The investor has a total of over 1200 options at his disposal (currencies, stocks, indices, interest rates, raw materials). CHECK
ETFs and stocks
Exposure to CAC 40 can also be obtained by purchasing ETFs with exposure to the most important French index. An example would be Lyxor CAC 40 ETF (CAC). The assets under management of the ETF amount to around €3 billion. The benchmark for the ETF is the CAC 40 Total Return index. TER (total expense ratio) is 0,25%, so it is a relatively low-cost solution for passive investors.
Another ETF giving exposure to the French blue chip index is Amundi CAC 40 UCITS ETF. Assets under management (AUM) as at 6 May 2021 amounted to €1 billion. TER (total expense ratio) is 370% per annum.
Brokers offering stocks and ETFs
For example on XTB Today, we can find over 3500 equity instruments and 400 ETFs, a Saxo Bank over 19 companies and 000 ETF funds.
Broker | |||
End | Poland | Denmark | Cyprus * |
Number of exchanges on offer | 16 exchanges | 37 exchanges | 24 exchanges |
Number of shares in the offer | approx. 3500 - shares circa 2000 - CFDs on shares |
19 - shares 8 - CFDs on shares |
approx. 3 - CFD on shares |
The amount of ETF on offer | approx. 400 - ETF approx. 170 - CFD on ETF |
3000 - ETF 675 - CFD on ETF |
approx. 100 - CFD on ETF |
Commission | 0% commission up to EUR 100 turnover / month | according to the price list | Spread depends on the instrument |
Min. Deposit | PLN 0 (recommended min. PLN 2000 or USD 500, EUR) |
0 PLN / 0 EUR / 0 USD | PLN 500 |
Platform | xStation | SaxoTrader Pro Saxo Trader Go |
Plus500 platform |
* PLUS500 CY offer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.
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