The EURO STOXX 50 contains the 50 largest companies from the euro area. This means that companies from Switzerland or Sweden, for example, are not represented in the index.
The most valuable group in the index is the French manufacturer of luxury items LVMH with a market capitalization of 410 billion euros in January 2022. At the other end of this list is the company Flutter Entertainment with a value of 27 billion euros.
This index is calculated by the stock exchange "STOXX Ltd", which is located in Zurich. This is a subsidiary of Deutsche Börse. Companies from Germany (15 pieces) and from France (17 pieces) are by far the most common nationalities represented in the index.
Calculation of the index
The index is calculated every trading day during the opening hours of STOXX-Ltd. in Zurich. These are from 9:00 to 17:30. During this period, the price of the index is updated once per second.
The calculation is based on the so-called value index formula. This calculation takes into account the development of each individual share.
These individual changes are additionally weighted. This means that the largest company has more influence on the index than the smallest company. Criteria for this weighting are market capitalization and the number of freely tradable shares.
The index includes the 50 largest (by market capitalization) companies from the EU currency area. The selection is updated every year in September. The EUROSTOXX is calculated in two different variants. There is the price index (dividend payments are not taken into account) and the performance index (dividend payments are taken into account). When people talk about the EUROSTOXX 50 in the press, they almost always mean the price index.
Overview of the index history
The EUROSTOXX 50 was established on February 26, 1998. The index was then calculated back to December 1986. 12/31/1991 was selected as the start date with a defined base value of 1,000 points.
In March 2000, the index reached its all-time high of 5,460 points. The bursting of the technology bubble caused the EUROSTOXX to fall by more than 65% over the next three years to a value of 1,850 points.
The recovery up to the financial crisis in 2007 was rather sluggish. The renewed crisis caused the index to drop to a value of 1,800 points in 2008.
However, a significant recovery, as seen above all in the USA, failed to materialize thereafter. The reason for this is to be found in the weak overall economy following the euro crisis. In January 2022, the index stands at 4,300 points, around 25% lower than 22 years ago.
Historical share price development
If an investor had invested €1,000 in the index at the start of 1998, this investment would be worth around €1,550 today. This corresponds to an annual return of only 1.8%.
The main reason for this was the poor recovery of the index after the financial crisis in 2008. Over the past five years, the EUROSTOXX 50 has generated a total return of 31%. Nevertheless, this is significantly less than the 82% achieved by the international MSCI World.
Significance for private investors
Europe has many quality companies with exciting, innovative and successful business models. An investment in these selected stocks has generated very good returns in the past and is likely to do so in the future.
An investment in an ETF on the EUROSTOXX 50, on the other hand, should be thoroughly considered. The historical return is to be rated as poor. The reason for this could be the lack of innovative software companies from Europe.
In the past, an investment in the global MSCI World yielded a significantly higher return with less risk.