CAC 40: The French giant that deserves your attention

What is the CAC 40 index and how does it work?

The CAC 40 is the main French stock index and one of the most important benchmarks in the eurozone. It is created by the Euronext Paris stock exchange group and tracks the performance of the 40 largest and most liquid companies traded on this exchange.

Key characteristics of the CAC 40 index:
 

• Name: Cotation Assistée en Continu (continuous electronic quotation)

• Established: 1987 (with an initial value of 1,000 points)

• Number of companies: 40 (from the top 100 by market capitalization and liquidity)

• Calculation methodology: Free-float weighted index (since 2003)

• Changes in composition: Quarterly (March, June, September, December)

• Quotation: Ex-dividend (price return index)

• Value update: Every 15 seconds during trading hours (9:00 a.m. to 5:30 p.m. CET)
   

How the CAC 40 is calculated

The index is calculated based on freely tradable shares and their market prices, similar to most major global indices.

In simple terms:

• Shares held by strategic investors or management are not included in the calculation.

• The weight of individual companies is limited to a maximum of 15% so that no single company has too much influence on the result.

• The final value is recalculated using an adjustment coefficient (for the transition from the franc to the euro, etc.).

Why the CAC 40 is not a purely French index

Although it brings together French companies, more than:

• 2/3 of the companies' revenues in the index come from abroad

• and more than 45% of shareholders are foreign investors.

The CAC 40 thus functions as a European index with global reach, including exposure to the US, Asia, and emerging markets. This makes it very popular with institutional investors and hedge funds.

Index composition: Luxury, industry, technology

The CAC 40 index is not just a mirror of the French economy. It is a strongly international basket of companies that generate most of their revenues outside the domestic market. It is this global exposure that makes the CAC 40 one of the most attractive European indices for foreign investors.

Most represented sectors in the CAC 40

Top 10 companies by market capitalization (as of September 2024)

1. LVMH – luxury conglomerate with global dominance

2. TotalEnergies – energy giant

3. L’Oréal – leader in the cosmetics industry

4. Sanofi – major pharmaceutical group

5. Hermès – luxury fashion icon

6. Airbus – European defense and aerospace giant

7. BNP Paribas – France's largest bank

8. Schneider Electric – electrical engineering leader

9. Kering – owner of Gucci, Balenciaga, and other brands

10. Dassault Systèmes – CAD/PLM software specialist

What makes the CAC 40 unique

• More than 65% of CAC 40 members' revenues come from abroad.

• Almost 45% of shareholders are foreign investors, the highest percentage in the EU.

• The companies employ more workers outside France than at home.
   

Thanks to this structure, the CAC 40 reacts more strongly than other European indices to global issues such as developments in China, the US, the ECB's monetary policy, and geopolitical crises. The advantage for investors is not only sector diversification, but also regional exposure without having to leave the eurozone.

How to trade the CAC 40 index: Futures, ETFs, CFDs

The CAC 40 index can be traded in several ways, depending on your capital, trading style, and investment horizon. Each instrument has its own advantages and risks.

CAC 40 Futures

• Traded on EUREID (ticker PIL)

• Suitable for professional traders and hedging

• Low spreads, high liquidity

• Requires higher capital and knowledge of position management

CAC 40 ETF

• Best suited for long-term investments

• Possibility of regular investing without financial leverage

• Examples: Lyxor CAC 40, Amundi CAC 40

• Tradable as regular stocks

CFDs on the CAC 40

• Flexible tool for short-term trading

• Use of leverage, possibility to trade even when the market is falling

• Suitable for intraday and swing strategies

• Higher risk requires mastery of money management

CAC 40 performance: Stability in the heart of Europe

The CAC 40 index has long maintained its reputation as a stable and robust benchmark for the European market. Although its returns do not usually match the momentum of technology indices such as the Nasdaq, it stands out primarily for its lower volatility and balanced sector structure.

While it has managed to maintain relatively moderate losses during periods of crisis, such as the pandemic, it can also offer double-digit returns in years with a favorable macroeconomic climate. At the same time, it remains less susceptible to fluctuations caused by speculative bubbles, as it is primarily based on traditional and well-established companies with global reach.

What shapes the performance of the CAC 40

The CAC 40 is sensitive to a combination of several factors:

• Global demand, particularly in the luxury goods, aviation and energy sectors

• ECB monetary policy, which has a direct impact on credit conditions and the banking sector

• The euro exchange rate against the US dollar, which affects the export performance of member companies

• Macroeconomic data from the eurozone and emerging markets, particularly China

Compared to technology-oriented indices, the CAC 40 is a more suitable choice for conservative traders and investors looking for lower volatility and a stable composition. Its structure also ensures that the index is not subject to short-term fads but reflects real economic fundamentals.

Diversification and the role of the CAC 40 in a portfolio

The CAC 40 index is more than just a mirror of the French stock market. Thanks to its significant exposure to global markets, particularly outside Europe, it is an effective tool for regional and sector diversification.

Why include the CAC 40 in your portfolio

• Geographical diversification: Although it is a French index, approximately two-thirds of member companies' revenues come from abroad. Exposure to the US, China, and emerging markets is particularly strong.

• Sector balance: The CAC 40 is not dependent on a single industry. Luxury goods, energy, pharmaceuticals, banking, and aviation. The index covers a wide range of industries, which dampens fluctuations during sector crises.

• Low volatility compared to other indices: Compared to the DAX or Nasdaq, the CAC 40 is more stable and less impulsive. This makes it a suitable addition to risk-balanced strategies.

• Time window for European traders: The CAC 40 mirrors the European trading session, which means it is ideal for traders in our time zone. Unlike Asian or US indices, you don't have to get up in the middle of the night.

When does it make sense to trade the CAC 40

• Swing trading – based on company results, ECB decisions or macro data from the eurozone

• Seasonal approaches – e.g. growth in demand for luxury goods during the holiday season

• Spread trading – for example, CAC 40 vs. DAX when there are different developments in the banking or industrial sectors

• Hedging against a decline in EU stocks – via futures or CFDs
   

Thanks to its structure and transparency, the CAC 40 is also an excellent tool for systematic strategies, backtesting, and algorithmic approaches.