Insurance and Auto Industries Lead FEZ, Oil and Gas Drags It Down

Insurance industry contributed the highest return to FEZ

The insurance industry contributed 6.2% to the SPDR Euro Stoxx 50 ETF’s (FEZ) performance on December 4, 2015. This industry constitutes 7.6% of FEZ’s holdings. Stocks such as AXA (AXAHY), Allianz, and Muenchener Rueckver rose 3.2%, 1.4%, and 1.2%, respectively.

How interest rate affects the insurance industry

Insurance company performance is directly related to interest rate movement. These companies derive their incomes by investing premiums in government and corporate bonds.

If the interest rate is higher, it’s good for insurance companies, because they can invest in higher-yielding bonds or securities. However, when the interest rate falls, their profit margins may be affected. To overcome this situation, they hedge their positions by investing in long-term corporate and government bonds.

Insurance and Auto Industries Lead FEZ, Oil and Gas Drags It Down

On December 4, 2015, Europe’s major insurance companies declared that they would raise rates in terms of premiums on life insurance policies sold to clients years ago to overcome this negative interest rate effect.

Auto manufacturing industry

The auto manufacturing industry provided the second-highest return to FEZ at 5.8% on December 4, 2015. This constitutes 7% of FEZ’s holdings. Stocks such as Daimler (DDAIF), Volkswagen (VLKAY), and BMW rose 2.2%, 1.8%, and 1.7%, respectively, on the day.

Banking industry

The banking industry contributed a 1% return to FEZ on December 4, 2015. After a massive fall on December 3, 2015, due to the ECB’s (European Central Bank) meeting outcome regarding cutting down on the deposit rate, the banking sector recovered some of its losses. Stocks such as Deutsche Bank (DB), Banco Santander (SAN), and ING Groep (ING) rose 0.83%, 0.34%, and 0.23%, respectively.

The oil and gas industry, in contrast

We’ve already discussed why oil prices slid on December 4, 2015. The disappointing outcome of OPEC’s meeting made investors’ sentiments bearish for crude oil. FEZ’s oil and gas industry fell 5% on December 4, 2015. Integrated oil and gas stocks such as Total (TOT), Eni (EAA), and Repsol fell 2.3%, 1.4%, and 1.3%, respectively.

In the next part, we’ll discuss the performances of FEZ’s top-performing stocks on December 4, 2015.