uploads///Industry wise Return of FEZ on November

Reading Auto Manufacturing’s Outperformance on November 23


Dec. 4 2020, Updated 10:53 a.m. ET

Returns according to industry on November 23

Previously in this series, we discussed why European stocks closed low on Monday, November 23, and we also looked at the moving averages of the top performers in the SPDR EURO STOXX 50 ETF’s (FEZ). But to better understand what drove these results, it’s important for investors to analyze the performance of the various industries in FEZ on November 23.

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How the auto manufacturing industry performed

As you can see in the above graph, the auto manufacturing industry provided a highest weighted return, at 0.085%, as well as the highest individual return of 4.2% on November 23. Stocks of Volkswagen (VLKAY) and Daimler (DDAIF), for example, contributed individual returns of 4.1%, and 0.79%, respectively.

Why does this matter? It matters because the manufacturing PMI is a leading indicator of a region’s economy. This rise in automobile sector stocks within the manufacturing space indicates a higher demand for automobile products in the coming months.

We should bear in mind, at the same time, that a weighted return is calculated by multiplying the weight of the industry in the ETF by the industry’s individual return. The individual return is the stock’s own return.

The pharmaceutical industry, by contrast

The pharmaceutical industry has a weight of ~10% in FEZ’s portfolio. Pharmaceutical stocks of companies like Sanofi (SNY) and Bayer, for example, account for 4.7%, and 4.9%, respectively, of FEZ. But the individual returns provided by these particular stocks on November 23 were -0.14%, and -0.69%, respectively.

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What about the telecommunication industry?

The telecommunication industry has a weight of ~7% in FEZ’s portfolio. Stocks from Telefonica (TEF), Deutsche Telekom (DTEGY), Orange (ORAN), for example, account for 2.3%, 2.2%, and 1.2%, respectively, of FEZ. The individual returns earned by these stocks were -2.2%, -0.14%, and -1.2%, respectively.

The EBITDA (earnings before interest, taxes, depreciation, and amortization)-to-trailing-12-month interest expense ratio of the telecommunication sector is generally low because of high-interest expense.

Why it matters to investors

But why does this matter to investors? It matters because if there is no hike in the interest rate in December, then the interest expense for telecommunication stocks will not change and will not hamper the stock’s profitability. But if there is a hike in the interest rate in December, it could hamper the profitability of companies’ stock. It is for this reason that ahead of a monetary policy review, telecommunication industry stocks usually became more volatile.

In the next part of this series, we’ll analyze why Volkswagen’s stock rose by 4.1% on November 23.


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