A new paper^[1] from Hamish Seegopaul, Global Head of Index Product Innovation at STOXX, takes on the objective of deciphering those preferences, by analyzing ETF flows but also looking through to the underlying holdings. The exercise presents a view of investors’ granular preferences, ex-post, and can be a valuable source of information that comes closer to investors’ revealed preferences, as opposed to broad ETF categories, which may be closer to their stated preferences.

The study looks at US ETFs and employs a taxonomy of preferences across style, industry and regional factors. The author creates a ‘Flow Portfolio,’ which is comprised of securities that were theoretically bought or sold each year to facilitate ETF’s net flows. Key findings in the study of Flow Portfolios are:

• There has been a high degree of year-on-year variability in style, industry and regional exposures
• There is evidence of ongoing appetite for broad-based exposure
• Over longer time horizons, there is little clear preference for specific exposures
• No matter the time frame examined, investors favored ETFs with strong in-year performances

Performance rules all preferences

Some trends are persistent over time, Hamish writes. For example, across years the Flow Portfolios show a preference for ‘more’ – more holdings and more performance – compared to the entire ETF universe. The preference for higher returns is probably of little surprise, and the paper does not imply that investors were able to capture it.

That preference also coincides with a relatively constant preference for Momentum. The factor remains somewhat of an outlier, as all other styles show a degree of variability year after year (although that variability mostly disappears when measured over time). Sectors and regions exposures preferences, too, change over time but are fairly neutral over the long run.

“In the short run, preferences can be highly variable,” Hamish writes. “In the long run, there is one preference to rule them all – and that is performance.”

One other notable shift in aggregate exposure over time is the move away from Americas-based holdings and towards EMEA and Asia/Pacific ones, the report says, a sign of diversification preference.

“These findings support a rich product landscape, however, pose challenges for the industry,” the author adds. “Some challenges – such as the ‘returns gap’ – have been sticky. Others, such as understanding preferences prior to investment decisions, will lead to further innovation.”

We invite you to download the paper and explore its methodology and results.

^[1] STOXX, “Understanding Investor Preferences through Passive Investment Flows,” February 2024. 

Benchmark three-month copper prices on the London Metal Exchange have risen 10.5% in 2024 to the highest since June 2022, and are up nearly 20% since a low in October last year.^[1] Several drivers have this year led to forecasts for tighter supply and increased demand — from mining shortages, to stronger Chinese consumption and reduced output, faster-than-expected US inflation and a new embargo on exchange trading of Russian copper. 

Figure 1: Copper price in London

_{Source: LME. Price for 3-month delivery.} 

More broadly, the copper market has reacted to increasing expectations that the global economy has avoided a “hard landing” recession, bolstering the outlook for a commodity that’s key in factories, energy, data centers and in the rollout of electric vehicles. Analysts predict the red metal has entered a “secular bull market” that may lift its price to a record, from USD 9,402/ton on April 12.^[2]

“The strong performance of the industrial metals complex over the year so far is a trend we expect to gather momentum ahead,” Goldman Sachs analysts Nicholas Snowdon and Lavinia Forcellese wrote in a research note on April 15.^[3] “This view particularly resonates with copper and aluminium, given the unprecedented fundamental shortfalls facing both metals over the next three years.”

“While the apparent troughing in the global industrial cycle presents a broadly supportive demand factor, it is only for copper and aluminium that fundamentals present a structural extension in bull market, tied to a combination of high green transition demand leverage, underinvested predominantly long-cycle supply dynamics, and already extremely low inventory cover,” the analysts added. 

Goldman Sachs expects copper prices to reach USD 12,000/ton in 12 months, underpinned by “a significant deficit phase from Q2 onwards until year-end.”

Figure 2: Quarterly and yearly copper balance (Goldman Sachs)

_{Source: Goldman Sachs Global Investment Research, BNEF, Woodmac, ICA, ICSG. Kt = thousands of tons.}

Stock rally

Investors have responded to rising metal prices by snapping up the shares of copper miners. The STOXX^® Global Copper Miners index rose 16.3% in March,^[4] its strongest monthly showing in three years and the highest return among 35 STOXX Thematic indices (Figure 3). In the past year, the gauge has gained 14%. 

Figure 3: 1-year and 1-month performance of STOXX Thematic indices

_{Source: STOXX. Gross returns in USD.} 

The STOXX Global Copper Miners index was introduced last year and tracks companies with the highest revenues from, and largest market share in, mining the metal. 

The index underlies the iShares Copper Miners UCITS ETF from BlackRock, launched in EMEA last year, which led gains among all copper equities ETFs in the month through April 10 according to Trackinsight data.^[5]

Figure 4: STOXX Global Copper Miners index 1-year return

_{Source: STOXX. Gross returns in USD.} 

In an interview in January this year, Omar Moufti, Thematics and Sectors Product Specialist for iShares EMEA, said the mining segment may face long-term supply shortages after multiple years of underinvestment. Besides this industry backdrop, Omar explained, there are fundamental drivers for so-called essential metals such as copper, particularly linked to the transition to a low-carbon economy and the related need for electrification.

“There are important constraints that have led or could lead to a large supply-demand gap” in copper and lithium, Omar said at the time. “If the forecasted demand for the metal increases, the limited potential for supply to follow suit paints a constructive backdrop for metal prices, and thus miners.”

BlackRock has also launched in EMEA the iShares Lithium & Battery Producers UCITS ETF, tracking the STOXX^® Global Lithium Miners and Battery Producers index.

The STOXX copper and lithium indices offer focused strategies within the broader metals and mining industry segment. Still, they remain diversified: over 30 companies in the case of the copper index. They allow investors to tap growing demand for metals and the rising profitability of miners, presenting an alternative to buying the underlying commodities or their derivatives.

Figure 5: STOXX Global Copper Miners index – Top 10 holdings

_{Source: STOXX. Data as of April 15, 2024.}

Economic upside

Copper is proving its status as a proxy for global growth. China’s manufacturing activity expanded at the fastest pace in 13 months in March, while that in the US grew last month for the first time in 1-1/2 years. 

According to Goldman Sachs, copper prices have historically risen 25% on average in the 12 months after a trough in global manufacturing indicators. 

Given the outlook for undersupply in the market, the prospect for lower interest rates and signs of a resurgent Chinese economy, the strong performance of copper this year may be more than justified. For investors, targeting the shares of specialized miners may be an efficient way to capture the upside of a world hungry for essential metals.  

^[1] Data through April 12, 2024.

^[2] “Bulls jump deeper into copper amid supply challenges, AI-fueled demand,” Reuters, April 15, 2024.

^[3] Goldman Sachs Commodities Research, “Metals Comment: Assessing the LME Russian ban impact,” April 15, 2024.

^[4] Gross returns in USD.

^[5] Source: ETF Stream, “Copper shortage leads surge in mining ETFs.”

The name, coined by Goldman Sachs in 2020, is an acronym for a group of 11 companies that stand out for strong earnings growth, low volatility, high and stable profit margins, and solid balance sheets, according to the investment bank (Figure 1). They account for a combined 21% of the STOXX^® Europe 600^[2] but were responsible for 60% of the benchmark’s gains in the past year,^[3] and have even beaten the Magnificent Seven on a risk-adjusted basis. Their characteristics are likely to predominate in the current economic cycle, the investment bank’s strategists say. 

Figure 1: The GRANOLAS

_{Source: STOXX. Data as of March 28, 2024.} 

Their average market capitalization is approximately EUR 250 billion. Unlike the Magnificent Seven, they are a diversified cohort, drawn from the Healthcare, Technology, Consumer Staples and Consumer Discretionary ICB Industries. The Magnificent Seven are mostly Technology stocks, except for Amazon and Tesla, which are Consumer Discretionary.

Figure 2: Group performance in past year and contribution to STOXX Europe 600 returns

_{Source: Goldman Sachs, “The Magnificent GRANOLAS,” February 12, 2024.}

The GRANOLAS have jumped more than 60% as a group since January 2021, matching the performance of the Magnificent Seven, Goldman Sachs’ calculations show. However, they accomplished this with lower volatility. Unlike their US counterparts, the European group avoided the sharp sell-off of 2022, when investors fretted about quickly rising interest rates (Figure 2). 

Figure 3: Steady rise

_{Source: Goldman Sachs, “The Magnificent GRANOLAS,” February 2024.}

“From a portfolio construction point of view, the GRANOLAS can help to boost the Sharpe ratio and mitigate risks as volatility picks up,” a team of Goldman Sachs strategists including Guillaume Jaisson and Sharon Bell wrote in a report on February 12, 2024.^[4] “If we were to enter a high vol regime, we believe the GRANOLAS would be well insulated relative to the market, as they have been in the recent past.”

The realized volatility of the GRANOLAS is on average twice lower than that of the Magnificent Seven, according to Goldman Sachs. 

Thanks to their large share of overseas earnings, the GRANOLAS were the main reason why the STOXX Europe 600 posted double-digit gains in 2023 despite lackluster economic growth in the region.  

Quality growth

Their business characteristics make the GRANOLAS a quality and defensive trade in Europe, according to Goldman Sachs. Figure 3 shows the GRANOLAS’ positive correlation with those two styles. Quality was the second best-performing style globally in the 12 months through February, according to the STOXX Factor indices, only beaten by Momentum.

“This type of company has tended to outperform when growth slows,” the strategists wrote.

Figure 4: Correlation with Growth and Defensive styles

_{Source: Goldman Sachs, “The Magnificent GRANOLAS,” February 2024.}

ASML, the Dutch company whose lithography machines are used to make chips, on January 24 reported that sales jumped 30% in 2023 from the year earlier. Booming revenue has also lifted the shares of Novo Nordisk, the company behind the Ozempic and Wegovy drugs, and LVMH, the maker of Louis Vuitton handbags and Tiffany’s jewelry. Both are now among the world’s top companies by market capitalization.

Capturing flows

Because of their size, the GRANOLAS also stand to capture the biggest share of flows amid the structural shift towards passive investment, according to Goldman Sachs. The bank’s research shows that the GRANOLAS tend to outperform when ETFs see more inflows than actively managed funds. Another benefit is that the GRANOLAS are among the most liquid companies in Europe, an attribute sought by large, US-based institutions.

Finding the right theme in the cycle

At a broad index level, European stocks may be behind the returns of other markets such as the US, dominated by uber-growth technology shares. However, Goldman’s analysis shows that an important part of the European market has similar growth characteristics, but at lower volatility levels than the popular, more cyclical stocks that dominate news headlines. That segment could provide above-average returns particularly in a market where economic growth is scarce and should volatility pick up.

^[1] Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla.

^[2] Data as of March 18, 2024.

^[3] Source: STOXX. Price data in USD from February 9, 2023 to February 9, 2024.

^[4] Goldman Sachs, “The Magnificent GRANOLAS,” February 2024.

The global benchmark jumped 3.2% last month when measured in dollars and including dividends^[1], for a 9% advance in the first quarter. It added 3.4% in March when measured in euros. The STOXX^® World AC index rose 3.1% in the month.

The Eurozone’s EURO STOXX 50^® added 4.4% in euros, while the pan-European STOXX^® Europe 600 advanced 4.2%^[2]. The STOXX^® North America 600 gained 3.1% in dollars, while the STOXX^® USA 500 rose 3%. The STOXX^® Asia/Pacific 600 climbed 2.3% in dollars. The STOXX^® Developed World rose 3.2% and the STOXX^® Emerging Markets gained 2.2%.

Figure 1: STOXX Benchmark indices’ March risk and return

_{Source: STOXX. Gross returns. Data as of March 28, 2024.}

Figure 2: STOXX Equity World indices’ March risk and return

_{Source: STOXX. Gross returns. Data as of March 28, 2024.}

Germany’s DAX^® rose 4.6% in the month. MDAX^®, which gauges the performance of German mid-caps, increased 4.7%. 

No hard landing

The US added 275,000 jobs in February, the government reported on March 8, more than the 200,000 openings that had been expected on average by economists.^[3] In the Eurozone, Purchasing Managers’ Indices for February released in March suggested the industry sector is rebounding from a period of stagnation.^[4] A string of economic reports has bolstered expectations that the global economy has avoided a recession amid high interest rates.  

Figure 3: Total annual % returns for STOXX World AC index

_{Source: STOXX. Gross returns.}

Figure 4: Select STOXX benchmarks’ returns since 2023

_{Source: STOXX. Gross returns in dollars except for STOXX Europe 600 Index, which is in euros. Data from Dec. 30, 2022, to March 28, 2024.}

Volatility little changed 

The EURO STOXX 50^® Volatility (VSTOXX^®), which tracks EURO STOXX 50 options prices, fell to 13.4 at the end of last month from 13.8 in February. A higher VSTOXX reading suggests investors are paying up for puts that offer insurance against stock price drops. The VDAX-New^®, which measures volatility in German equities, eased to 12.8 from 12.9 in February. 

Factor investing

The Momentum signal ruled across geographies for a second straight month, according to the STOXX Factor indices (Figure 5). The Low Risk factor repeated February’s position at the bottom of the group.

Figure 5: STOXX Factor (Global) indices’ March risk and return characteristics

_{Source: STOXX. Gross returns. Data as of March 28, 2024.}

Climate benchmarks

Among climate benchmarks, the STOXX^® Global 1800 Paris-Aligned Benchmark (PAB) rose 1.6%, as did the STOXX^® Global 1800 Climate Transition Benchmark (CTB). The PAB and CTB indices follow the requirements outlined by the European Commission’s climate benchmarks regulation.

Sustainability indices

The STOXX^® Global 1800 ESG-X index gained 2.9% in the month. The STOXX^® ESG-X indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions. 

Within indices that combine exclusions and best-in-class ESG integration, the EURO STOXX 50^® ESG index rose 4.7%. Germany’s DAX^® 50 ESG index (+4%), which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, lagged the benchmark DAX’s return in the month.

The STOXX^® Global 1800 SRI advanced 3.8%. The STOXX SRI indices apply a rigorous set of carbon emission intensity, compliance and involvement screens, and track the best ESG performers in each industry group within a selection of STOXX benchmarks. 

Finally, the DAX^® ESG Screened added 3.9% in the month. The index reflects the composition of the DAX benchmark minus companies that fail to pass norms-based and controversial weapons screenings, meet minimum ESG ratings or are involved in certain business activities considered undesirable from a responsible investing perspective. 

Thematics, dividend strategies

Only nine of 35 STOXX^® Thematic indices outperformed the benchmark STOXX Global 1800 last month. The STOXX^® Global Copper and Metals Mining (16%) and STOXX^® Global Copper Miners (16.2%) indices stood out with double-digit gains in the month.  

Dividend strategies rebounded from two months of losses. The STOXX^® Global Maximum Dividend 40 (+4.1% on a net basis) selects only the highest-dividend-yielding stocks. The STOXX^® Global Select Dividend 100 (+3.9%) tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.

Minimum variance

Minimum variance strategies failed to match the benchmarks’ returns last month against the market’s bullish backdrop. The STOXX^® Global 1800 Minimum Variance rose 2.7% and the STOXX^® Global 1800 Minimum Variance Unconstrained added 2.6%. 

The STOXX Minimum Variance Indices come in two versions. A constrained version has similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, on the other hand, has more freedom to fulfill its minimum variance mandate within the same universe of stocks.

^[1] All results are total returns before taxes unless specified.

^[2] Throughout the article, all European indices are quoted in euros, while global, North America, US, Japan and Asia/Pacific indices are in US dollars.

^[3] FT, “US jobs figures beat forecasts but downgrades complicate outlook,” March 8, 2024.

^[4] Reuters, “Euro zone business activity moves closer to recovery, PMI survey shows,” March 5, 2024.

The STOXX Global 1800 jumped 4.3% in the month when measured in US dollars and including dividends^[1], and reached a record high on a price level. It rose 4.7% in February when measured in euros. The STOXX^® World AC index also added 4.3% in dollars in the month.  

The Eurozone’s EURO STOXX 50^® added 5.1% in euros, while the pan-European STOXX^® Europe 600 advanced 2%^[2] and reached an all-time high on a price level. The STOXX^® North America 600 gained 5.4% in dollars, while the STOXX^® USA 500 rose 5.6%. The STOXX^® Asia/Pacific 600 climbed 1.9% in dollars. The STOXX^® Developed World climbed 4.2% and the STOXX^® Emerging Markets gained 4.7%.

Figure 1: STOXX Benchmark indices’ February risk and return

_{Source: STOXX. Gross returns. Data as of February 29, 2024.}

Figure 2: STOXX Equity World indices’ February risk and return

_{Source: STOXX. Gross returns. Data as of February 29, 2024.}

Germany’s DAX^® rose 4.6% in the month. MDAX^®, which gauges the performance of German mid-caps, decreased 0.5%. 

Economy, earnings paint bullish picture

The U.S. economy added 353,000 jobs in January, the government said on February 2, nearly twice as much as economists had forecast. ^[3] The consumer price index rose an annual 3.1% in January, down from 3.4% in December, the U.S. Bureau of Labor Statistics said February 13. Boosting stocks further were earnings reports in the month from the likes of Nvidia, Amazon and Meta, which smashed analysts’ estimates. 

Figure 3: Total annual % returns for STOXX World AC index

_{Source: STOXX. Gross returns.}

Figure 4: Select STOXX benchmarks’ returns since 2023

_{Source: STOXX. Gross returns in dollars except for STOXX Europe 600 Index, which is in euros. Data from Dec. 30, 2022, to February 29, 2024.}

Volatility drops 

The EURO STOXX 50^® Volatility (VSTOXX^®), which tracks EURO STOXX 50 options prices, fell to 13.8 at the end of last month from 14.8 in January. A higher VSTOXX reading suggests investors are paying up for puts that offer insurance against stock price drops. The VDAX-New^®, which measures volatility in German equities, eased to 12.9 from 14.2 in January. 

Factor investing

The Momentum signal ruled across geographies, according to the STOXX Factor indices (Figure 5). The Low Risk factor was the weakest signal in the month.

Figure 5: STOXX Factor (Global) indices’ February risk and return characteristics

_{Source: STOXX. Gross returns. Data as of February 29, 2024.}

Climate benchmarks

Among climate benchmarks, the STOXX^® Global 1800 Paris-Aligned Benchmark (PAB) rose 4% and the STOXX^® Global 1800 Climate Transition Benchmark (CTB) added 3.8%. The PAB and CTB indices follow the requirements outlined by the European Commission’s climate benchmarks regulation.

Within the STOXX Low Carbon indices, the EURO STOXX 50^® Low Carbon (+4.8%) underperformed the EURO STOXX 50 by 31 basis points. Elsewhere, the STOXX^® Global Climate Change Leaders (+0.5%), which selects corporate leaders that are publicly committed to reducing their carbon footprint, underperformed the STOXX Global 1800 by 384 basis points last month.

Sustainability indices

The STOXX^® Global 1800 ESG-X index gained 4.5% in the month. The STOXX^® ESG-X indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions. 

Within indices that combine exclusions and best-in-class ESG integration, the EURO STOXX 50^® ESG index rose 4.3%. Germany’s DAX^® 50 ESG index (+4.4%), which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, lagged the benchmark DAX’s return in the month.

Among other STOXX sustainability families, the STOXX^® Global 1800 ESG Broad Market added 4.3% in the month. The STOXX ESG Broad Market indices apply a set of compliance, product involvement and ESG performance exclusionary screens on a starting benchmark universe until only the 80% top ESG-rated constituents remain. 

The STOXX^® Global 1800 ESG Target rose 3.4%, the EURO STOXX^® ESG Target gained 2.7% and theDAX^® ESG Target added 4.6%. The STOXX and DAX ESG Target indices seek to significantly improve the benchmark portfolio’s ESG profile while mirroring its returns as closely as possible. Through a series of constraints, the indices implement an optimization process to maximize the overall ESG score of the portfolio while limiting the tracking error to the benchmark. 

The STOXX^® Global 1800 SRI advanced 4.7%. The STOXX SRI indices apply a rigorous set of carbon emission intensity, compliance and involvement screens, and track the best ESG performers in each industry group within a selection of STOXX benchmarks. 

Finally, the DAX^® ESG Screened added 4.5% in the month. The index reflects the composition of the DAX benchmark minus companies that fail to pass norms-based and controversial weapons screenings, meet minimum ESG ratings or are involved in certain business activities considered undesirable from a responsible investing perspective. 

Thematics, dividend strategies

Twenty of 34 STOXX^® Thematic indices outperformed the benchmark STOXX Global 1800 last month. The STOXX^® Global Lithium Miners and Producers index was the best performer after adding 13.6%. 

Dividend strategies had losses in dollars. The STOXX^® Global Maximum Dividend 40 (-2.1%) selects only the highest-dividend-yielding stocks. The STOXX^® Global Select Dividend 100 (-1.1%) tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.

Minimum variance

Minimum variance strategies struggled last month. The STOXX^® Global 1800 Minimum Variance rose 1.8% and the STOXX^® Global 1800 Minimum Variance Unconstrained fell 0.3%. 

The STOXX Minimum Variance Indices come in two versions. A constrained version has similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, on the other hand, has more freedom to fulfill its minimum variance mandate within the same universe of stocks.

^[1] All results are total returns before taxes unless specified.

^[2] Throughout the article, all European indices are quoted in euros, while global, North America, US, Japan and Asia/Pacific indices are in dollars.

^[3] AP, “The US didn’t just avoid a recession — it’s adding hundreds of thousands of new jobs,” February 2, 2024.

^[4] Figures in parentheses show last month’s gross returns.

Investors seeking exposure to technology have driven the industry’s shares higher and have found good reasons to do so: profits at ASML Holding NV and SAP SE, now respectively the largest and third-biggest constituents in the European index, are crashing analysts’ estimates. The two companies alone are responsible for around a quarter of the index’s gains since the start of 2023, and for two-thirds of its returns in 2024. 

The new index titans look different from the more defensive and domestic-focused companies that held the biggest sway in the Eurozone blue-chip benchmark when it was launched 26 years ago today. In a recent Bloomberg News article, Michael Msika wrote that the new-found weight of technology stocks in the EURO STOXX 50 is likely to influence the index’s performance. 

“Europe may lack a ‘Magnificent Seven’^[1] tech cohort of its own, but a pared-down version of that phenomenon has emerged,” writes Msika. “Tech is gaining importance among investors, and the sector has yet to breach its record high from 2000, leaving plenty of room for further gains.”

Performance

The Eurozone’s blue-chip benchmark gained 19.2% in 2023 and 23.2% when including dividends. The index has got off to a good start this year, gaining 2.8% and 3%, respectively, in January. That said, the index remains 15% short of its record on a price level, reached in 2000. 

Figure 1: EURO STOXX 50 performance

_{Source: STOXX. Price index in EUR. Data through January 31, 2024.} 

Chip machines

ASML on January 24 reported that profits jumped 8.2% in the last three months of 2023 from the previous quarter, beating analysts’ predictions.^[2] Shares in the Dutch company whose lithography machines are used to make chips rose 7.9% on the results, and are now up 60% since the start of 2023.

The same day, SAP shares jumped 8.3% to a record after the German maker of enterprise application software released earnings that beat expectations and said it plans to restructure 8,000 jobs as it shift resources to Artificial Intelligence technology.^[3] SAP has climbed almost 70% since the start of 2023. 

SAP and ASML have accounted for 7 percentage points, or just over a quarter, of the EURO STOXX 50’s 27% return since the start of 2023 (Figure 2). This year, their contribution has increased, accounting for two-thirds of the portfolio’s 3% advance through January (Figure 3).

Figure 2: Stock contribution, January 2023 – January 2024

_{Source: Axioma. Period covers from January 1, 2023, to January 31, 2024.} 

Figure 3: Stock contribution, January 2024

_{Source: Axioma. Period covers January 2024.} 

Shifting industry composition

The increasing sway of the Technology sector in the Eurozone market started years ago, and is part of a shifting sector composition in the index and broader economy. Figure 4 shows the evolution, in roughly five-year intervals, of a selection of ICB Supersectors as represented in the EURO STOXX 50 since 1998. The trends are a proxy for the fortunes of each industry, although there have also been company reclassifications and changes to industry definitions over the period. 

Technology, in gray, is one of the biggest advancers over the period. It now accounts for 17.4% of the benchmark’s weight, the largest Supersector in the index, up from just over 1% in 2008. The Supersector accounted for nearly 8% upon inception of the index, before Philips, Nokia, Siemens and Alcatel were re-classified from Technology to other Supersectors.

Over the entire 1998-2024 period, it is Industrial Goods & Services that has registered the biggest weight increase: it’s gone from less than 1% in 1998 to 13.9% of the index today, thanks to stocks including Siemens and Schneider Electric. This sector and Technology have given the EURO STOXX 50 a more cyclical tilt. 

By contrast, Oil & Gas, Insurance and the defensive Supersectors of Utilities and  Telecommunications have ceded territory in the past two-and-a-half decades.  

Banks accounted for over a fifth of the index in 2008, before the financial crisis triggered a sell-off in the sector. 

When the EURO STOXX 50 was launched in 1998, the continent’s large phone companies accounted for a combined 16.5% of the benchmark. Energy companies were the second-largest Supersector, at 15.1%, followed by Insurers with a total weight of 13%. 

Figure 4: EURO STOXX 50’s ICB composition, selected Supersectors

_{Source: STOXX. Chart shows weights as of February 1998, January 2003, January 2008, January 2014, January 2019 and January 2024. Only selected Supersectors are shown.} 

While the Technology Supersector has grown in Europe, it remains smaller than in the US. In the STOXX^® USA 500, it accounts for 32.7% of the index. 

Valuations remain competitive

As Bloomberg’s Msika notes, profits at the EURO STOXX 50’s largest companies have risen alongside share prices, keeping the index’s relative valuation around its historical average (Figure 5).

Figure 5: EURO STOXX 50 valuation

_{Source: Bloomberg.}

At 12.4 times its companies’ projected earnings, the Eurozone benchmark is about a third cheaper than the STOXX^® USA 500 index, which trades at 18.2 times earnings.

Technology dominance

The role of a benchmark is to be representative of its underlying market and economic reality. In that sense, the EURO STOXX 50 shows that the Eurozone has also been impacted by the technology boom this century, and investors’ rush to participate in the economic upside of the pioneering companies innovating in the industry. 

^[1] As Diana R. Baechle and Leon Serfaty of Axioma have written here and here, the “Magnificent Seven” stocks (Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla) have held an outstanding influence on the performance of US equity indices.
^[2] Reuters, “ASML shares close at record high after earnings beat, orders pop,” January 24, 2024.
^[3] Euronews, “SAP shares hit all-time high after announcing job restructuring plans,” January 24, 2024. 

The STOXX Global 1800 rose 1.3% in the month when measured in US dollars and including dividends^[1], after gaining 23.9% in 2023 — its best annual showing since 2019. The benchmark traded at less than 1 basis point away from a record high on a price level. It rose 3% in January when measured in euros. The STOXX^® World AC index added 0.6% in dollars in the month.  

The Eurozone’s EURO STOXX 50^® added 3% in euros, while the pan-European STOXX^® Europe 600 advanced 1.5%.^[2] The STOXX^® North America 600 gained 1.6% in dollars, while the STOXX^® USA 500 rose 1.7%, trading at an all-time high when excluding dividends. The STOXX^® Asia/Pacific 600 climbed 1.5% in dollars. The STOXX^® Developed World climbed 1.2% and the STOXX^® Emerging Markets dropped 4.1%.

Figure 1: STOXX Benchmark indices’ January risk and return

_{Source: STOXX. Gross returns. Data as of Jan. 31, 2024.}

Figure 2: STOXX Equity World indices’ January risk and return

_{Source: STOXX. Gross returns. Data as of Jan. 31, 2024.}

Germany’s DAX^® rose 0.9% in the month. MDAX^®, which gauges the performance of German mid-caps, decreased 4.3%.  

US economy steams ahead

While investors pared down expectations for how soon US interest rates will start falling this year, optimism remains that the Federal Reserve will lower the cost of borrowing even as the economy continues to grow. The US reported on January 25 that the country’s GDP expanded 3.3% in the fourth quarter from the previous three months, beating the 2% consensus in a Bloomberg survey of economists.^[3]

Figure 3: Total annual % returns for STOXX World AC index

_{Source: STOXX. Gross returns.}

Figure 4: Select STOXX benchmarks’ returns since 2023

_{Source: STOXX. Gross returns in dollars except for STOXX Europe 600 Index, which is in euros. Data from Dec. 30, 2022, to Jan. 31, 2024.}

Volatility rises 

Despite the rally in equities, the EURO STOXX 50^® Volatility (VSTOXX^®), which tracks EURO STOXX 50 options prices, rose to 14.8 at the end of last month from 13.6 in December. A higher VSTOXX reading suggests investors are paying up for puts that offer insurance against stock price drops. The VDAX-New^®, which measures volatility in German equities, rose to 14.2 from 13.5 in December. 

Technology stocks extend rally

Twelve of 20 Supersectors in the STOXX Global 1800 had positive returns in the month, led by the STOXX^® Global 1800 Media index (+7.5%)^[4]. The STOXX^® Global 1800 Technology index, which was the best-performing Supersector in 2023 with a 65.2% jump, came up second in January after a 4.4% increase.

Only six of 25 developed markets tracked by STOXX rose in January when measured in dollars. Nine of 20 emerging markets tracked by STOXX rose in the month. 

Factor investing

On a global basis, Momentum had its best month on record relative to the STOXX Global 1800 benchmark, according to the STOXX Factor indices (Figure 5). The Size factor, which tilts towards the smallest-capitalization stocks, was the weakest signal in the month.

Figure 5: STOXX Factor (Global) indices’ January risk and return characteristics

_{Source: STOXX. Gross returns. Data as of Jan. 31, 2024.}

Climate benchmarks

Among climate benchmarks, the STOXX^® Global 1800 Paris-Aligned Benchmark (PAB) rose 1.4% and the STOXX^® Global 1800 Climate Transition Benchmark (CTB) added 1.5%. The PAB and CTB indices follow the requirements outlined by the European Commission’s climate benchmarks regulation.

Within the STOXX Low Carbon indices, the EURO STOXX 50^® Low Carbon (+2.6%) underperformed the EURO STOXX 50 by 37 basis points. Elsewhere, the STOXX^® Global Climate Change Leaders (+1.9%), which selects corporate leaders that are publicly committed to reducing their carbon footprint, outperformed the STOXX Global 1800 by 65 basis points last month.

Sustainability indices

The STOXX^® Global 1800 ESG-X index gained 1.4% in the month. The STOXX^® ESG-X indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions. 

Within indices that combine exclusions and best-in-class ESG integration, the EURO STOXX 50^® ESG index rose 3%, in line with its benchmark. Germany’s DAX^® 50 ESG index (+0.1%), which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, lagged the benchmark DAX’s return in the month.

Among other STOXX sustainability families, the STOXX^® Global 1800 ESG Broad Market added 1.3% in the month. The STOXX ESG Broad Market indices apply a set of compliance, product involvement and ESG performance exclusionary screens on a starting benchmark universe until only the 80% top ESG-rated constituents remain. 

The STOXX^® Global 1800 ESG Target rose 1%, the EURO STOXX^® ESG Target gained 2.3% and the DAX^® ESG Target added 1.2%. The STOXX and DAX ESG Target indices seek to significantly improve the benchmark portfolio’s ESG profile while mirroring its returns as closely as possible. Through a series of constraints, the indices implement an optimization process to maximize the overall ESG score of the portfolio while limiting the tracking error to the benchmark. 

The STOXX^® Global 1800 SRI advanced 3.4%. The STOXX SRI indices apply a rigorous set of carbon emission intensity, compliance and involvement screens, and track the best ESG performers in each industry group within a selection of STOXX benchmarks. 

Finally, the DAX^® ESG Screened added 0.6% in the month. The index reflects the composition of the DAX benchmark minus companies that fail to pass norms-based and controversial weapons screenings, meet minimum ESG ratings or are involved in certain business activities considered undesirable from a responsible investing perspective. 

Thematics, dividend strategies

Only nine of 34 STOXX^® Thematic indices outperformed the benchmark STOXX Global 1800 last month. The STOXX^® Global Lithium Miners and Producers index was the worst performer after slumping 25.6%. 

Dividend strategies had losses in dollars last month. The STOXX^® Global Maximum Dividend 40 (-1.3%) selects only the highest-dividend-yielding stocks. The STOXX^® Global Select Dividend 100 (-1.9%) tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.

Minimum variance

Most minimum variance strategies outperformed last month. The STOXX^® Global 1800 Minimum Variance rose 1.4% and the STOXX^® Global 1800 Minimum Variance Unconstrained advanced 0.4%. 

The STOXX Minimum Variance Indices come in two versions. A constrained version has similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, on the other hand, has more freedom to fulfill its minimum variance mandate within the same universe of stocks.

^[1] All results are total returns before taxes unless specified.
^[2] Throughout the article, all European indices are quoted in euros, while global, North America, US, Japan and Asia/Pacific indices are in dollars. 
^[3] ING, “US GDP confounds slowdown fears, but ‘job done’ on inflation,” January 25, 2024.
^[4] Figures in parentheses show last month’s gross returns. 

The STOXX Global 1800 jumped 4.9% last month when measured in dollars and including dividends,^[1] for a 2023 return of 23.9% — its best annual showing since 2019 and second-best in the past decade. The benchmark slid 17.9% in 2022, its worst year since 2008, as central banks pressed ahead with higher rates to fight runaway inflation. The index rose 3.6% in December when measured in euros.  

The STOXX^® World AC index climbed 3.6% in dollars in December. The Eurozone’s EURO STOXX 50^® added 3.2% in euros, while the pan-European STOXX^® Europe 600 advanced 3.9%, both reaching a record.^[2] The STOXX^® North America 600 gained 4.7% in dollars, while the STOXX^® USA 500 rose 4.6%, both also breaking an all-time high. The STOXX^® Asia/Pacific 600 climbed 5.6% in dollars to a two-year high. The STOXX^® Developed World climbed 4.9% and the STOXX^® Emerging Markets rose 4.1%.

Figure 1: STOXX Benchmark indices’ December risk and return

_{Source: STOXX. Gross returns. Data as of Dec. 29, 2023.}

Figure 2: STOXX Equity World indices’ December risk and return

_{Source: STOXX. Gross returns. Data as of Dec. 29, 2023.}

Germany’s DAX^® rose 3.3% in the month. MDAX^®, which gauges the performance of German mid-caps, increased 3.6%. 

The ‘everything’ rally

During 2023, economic reports showed a downward trend in inflation while economic activity held up. On Dec. 13, Fed policymakers released a forecast for three interest-rate cuts in 2024, and Chair Jerome Powell said monetary policy easing may be warranted amid sustainable job growth. Optimism that interest rates would start falling as early as this year lifted the price of everything in 2023 – from stocks to bonds and cryptocurrencies. 

Figure 3: Total annual % returns for STOXX World AC index

_{Source: STOXX. Gross returns.}

Figure 4: Select STOXX benchmarks’ returns in 2023

_{Source: STOXX. Gross returns in dollars except for STOXX Europe 600 Index, which is in euros. Data from Dec. 30, 2022, to Dec. 29, 2023.}

Volatility little changed

The EURO STOXX 50^® Volatility (VSTOXX^®), which tracks EURO STOXX 50 options prices, fell to 13.6 at the end of last month from 13.8 in November. A higher VSTOXX reading suggests investors are paying up for puts that offer insurance against stock price drops. The VDAX-New^®, which measures volatility in German equities, rose to 13.5 from 13.3 in November. 

Technology stocks win 2023

All 20 Supersectors in the STOXX Global 1800 had positive returns in the month, led by the STOXX^® Global 1800 Construction & Materials index. For the year, the STOXX^® Global 1800 Technology index was the best performer with a 65.2% jump.

All 25 developed markets tracked by STOXX rose in the month when measured in dollars. For the entire year, all markets except Hong Kong gained. Sixteen of 20 emerging markets tracked by STOXX rose in the year. 

Factor investing

On a global basis, Size showed the best performance in December while Low Risk was the weakest style, according to the STOXX Factor indices (Figure 5). The Size factor tilts towards the smallest-capitalization stocks. 

For 2023, the STOXX^® Global 1800 Ax Quality was the strongest factor with a 30.6% gain. 

Figure 5: STOXX Factor (Global) indices’ December risk and return characteristics

_{Source: STOXX. Gross returns. Data as of Dec. 29, 2023.}

Climate benchmarks

Among climate benchmarks, the STOXX^® Global 1800 Paris-Aligned Benchmark (PAB) (+4.6%)^[3] and the STOXX^® Global 1800 Climate Transition Benchmark (CTB) (+4.7%) underperformed their benchmark slightly in the month. The PAB and CTB indices follow the requirements outlined by the European Commission’s climate benchmarks regulation.

Within the STOXX Low Carbon indices, the EURO STOXX 50^® Low Carbon (+3.3%) performed in line with the EURO STOXX 50. Elsewhere, the STOXX^® Global Climate Change Leaders (+4%), which selects corporate leaders that are publicly committed to reducing their carbon footprint, underperformed the STOXX Global 1800 by nearly 1 percentage point last month.

Sustainability indices

The STOXX^® Global 1800 ESG-X index gained 5.1% in the month. The STOXX^® ESG-X indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions. 

Within indices that combine exclusions and best-in-class ESG integration, the EURO STOXX 50^® ESG index rose 3.5%. Germany’s DAX^® 50 ESG index (+3.3%), which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, matched the benchmark DAX’s return in the month.

Among other STOXX sustainability families, the STOXX^® Global 1800 ESG Broad Market added 5% in the month. The STOXX ESG Broad Market indices apply a set of compliance, product involvement and ESG performance exclusionary screens on a starting benchmark universe until only the 80% top ESG-rated constituents remain. 

The STOXX^® Global 1800 ESG Target rose 4.8%, the EURO STOXX^® ESG Target gained 3.2% and the DAX^® ESG Target added 3%. The STOXX and DAX ESG Target indices seek to significantly improve the benchmark portfolio’s ESG profile while mirroring its returns as closely as possible. Through a series of constraints, the indices implement an optimization process to maximize the overall ESG score of the portfolio while limiting the tracking error to the benchmark. 

The STOXX^® Global 1800 SRI advanced 5.7%. The STOXX SRI indices apply a rigorous set of carbon emission intensity, compliance and involvement screens, and track the best ESG performers in each industry group within a selection of STOXX benchmarks. 

Finally, the DAX^® ESG Screened added 3.4% in the month. The index reflects the composition of the DAX benchmark minus companies that fail to pass norms-based and controversial weapons screenings, meet minimum ESG ratings or are involved in certain business activities considered undesirable from a responsible investing perspective. 

Thematics, dividend strategies

Twenty-nine of 34 STOXX^® Thematic indices outperformed the benchmark STOXX Global 1800 last month, led by the STOXX^® Global Copper and Metals Mining (+12.7%). 

Dividend strategies had mixed performances over the month and underperformed for all of 2023. The STOXX^®Global Maximum Dividend 40 (+3.4%) selects only the highest-dividend-yielding stocks. The STOXX^® Global Select Dividend 100 (+7.7%) tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.

Minimum variance

Minimum variance strategies had weak relative performances last month. The STOXX^® Global 1800 Minimum Variance rose 2.2% and the STOXX^® Global 1800 Minimum Variance Unconstrained advanced 3.1%. 

The STOXX Minimum Variance Indices come in two versions. A constrained version has similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, on the other hand, has more freedom to fulfill its minimum variance mandate within the same universe of stocks.

^[1] All results are total returns before taxes unless specified.
^[2] Throughout the article, all European indices are quoted in euros, while global, North America, US, Japan and Asia/Pacific indices are in dollars. 
^[3] Figures in parentheses show last month’s gross returns.