By contrasting the two popular benchmarks for Eurozone equities – the MSCI EMU and the EURO STOXX 50 – we can see the difference in coverage.
The MSCI EMU is a broad market index. It is constructed by summing up MSCI indices for individual Eurozone countries, each of which covers also 85% of a single country market. Whereas, the EURO STOXX 50 is a blue-chip index that selects the 50 largest companies in the Eurozone.
The Euro STOXX 50 has become less representative due to the growing relevance of mid-cap stocks. In addition, the significance of the top 50 will likely continue to decrease as this fixed number becomes a smaller and smaller fraction of the total number of listed companies.
The indices have different country and sector allocations, which may affect performance. The MSCI EMU, for instance, has an underweight of about 4% to Germany and France relative to the EURO STOXX 50. In addition, the MSCI EMU is sector agnostic.
The broad market index fares much better than the blue-chip index at the Eurozone level. And, as we show elsewhere, even at the country level the broad market index often has the edge.
Investors should be aware that past performance is not an indicator of future results.