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Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors.
Before trading, please ensure that you fully understand the risks involved
Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you fully understand the risks involved
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Thursday, November 25, 2021

FRASPA Strategy

By Century Financial in Investment Insights

FRASPA Strategy
FRASPA Strategy

* Trading in financial market carries risk and can result in loss of capital.
* This performance is only observed with historical backtests and not traded by the company.


The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.

Risks & Assumptions

Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.
The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone.
Past performance is not indicative of and does not guarantee future results.
Individual stocks in the index are subject to both weightage recalculation & recomposition risk. As a result, certain stocks may be added or removed from the index upon index recalculation. Consequently, the performance of the relative index may deviate from the one specified above.
Holding cost is subject to change impacting the trade either negatively or more positively.

Evergreen CAC 40

The CAC 40 is the most popular measure of stocks on the Euronext Paris and is made up of the largest 40 companies listed in France screened by market capitalization, trading activity, size of balance sheet and liquidity. The multinational reach of the companies listed on the CAC 40 makes it the most popular European index for foreign investors. The major sectors dominating the index are Luxury Brands, Industrial, Consumer Staples and Financial. Additionally, the CAC index does not truly reflect the French economy, instead the index is dominated by the presence of global companies and reflects sentiments across the globe.

The valuation multiples of luxury brands have remained relatively impressive compared to others sub sectors. And while several countries in the EU zone are considering lockdown environments, key demand regions across the globe have no intentions to reimpose restrictions. This can further buoy the luxury basket present in CAC.

As shown in the chart below, on technical levels, the CAC 40 index has broken a 30 year high of 6647, which is a bullish indication.


Source: Bloomberg
Date: 24th Nov 2021

IBEX 35: The Laggard

The Spanish Index is formulated of the Utilities sector, succeeded by the Financial and Consumer Discretionary sector. While the banking sector may logically witness some support financially due to rising yields, but the valuation multiples of this sector remain low as it qualifies as a defensive industry. Additionally, utilities comprise of over 22% of the index, and the sector remains at a disadvantage in Spain. A package of government measures imposed in Spain to reduce the impact of surging energy prices on electricity bills were mostly at the expense of the country's integrated utilities, leaving them at a competitive disadvantage to European peers. Thus, the financials of the companies under this sub sector do not showcase stellar growth rates in the previous quarters. These overall impacts the performance of the index to a great extent.

Fundamental Factors

1. Earnings Growth

CAC 40 witnessed a 58% growth in earnings from 2019, whereas IBEX 35 only grew by approximately 37%. The relatively fast paced growth in earnings for CAC 40 is a fundamental factor contributing to CAC’s relative outperformance.

Earnings Growth (2019 - 2021*)
CAC 40 IBEX 35
2019 274.72 456.6
2021* 434.40 624.34
Growth 58.12% 36.74%

*2021 numbers have been forecasted for the year of 2021.

Source: Bloomberg
Date: 24th Nov 2021

2. Net Debt/EBITDA

A lower ratio indicates that the index is not excessively indebted, and the member companies have substantial profit margins. CAC has a net debt/EBITDA ratio of 4.49 which is much lower than that of IBEX (6.9), indicating a better profitability profile for CAC 40.

CAC 40 IBEX 35
2021* 4.49 6.90

*2021 numbers have been forecasted for the year of 2021.

Source: Bloomberg
Date: 24th Nov 2021

3. Return on Equity

The forecast for the annual return on equity for the two indices showcases a clear winner. As per the table below indicates how well the member company's management deploys shareholder capital. CAC 40 is a better bet as per the ratio.

Return on Equity
CAC 40 IBEX 35
2021* 12.76 9.58

*2021 numbers have been forecasted for the year of 2021.

Source: Bloomberg
Date: 24th Nov 2021

Top 10 Companies along with ICB Super Sector


Name Weight ICB Super Sector Name
Iberdrola SA 13.51% Utilities
Industria de Diseno Textil SA 12.19% Retail
Banco Santander SA 11.15% Banks
Banco Bilbao Vizcaya Argentaria SA 7.42% Banks
Cellnex Telecom SA 7.40% Telecommunications
Amadeus IT Group SA 5.51% Technology
Telefonica SA 4.79% Telecommunications
Ferrovial SA 4.11% Construction and Materials
CaixaBank SA 4.10% Banks
Aena SME SA 3.46% Industrial Goods and Services

Source: Bloomberg
Date: 24th Nov 2021

CAC 40

Name Weight* ICB Super Sector Name
LVMH Moet Hennessy Louis Vuitton SE 25.71% Consumer Products and Services
L'Oreal SA 16.28% Consumer Products and Services
Hermes International 12.12% Consumer Products and Services
TotalEnergies SE 8.03% Energy
Sanofi 7.92% Health Care
Schneider Electric SE 6.45% Industrial Goods and Services
Kering SA 6.25% Retail
Airbus SE 6.15% Industrial Goods and Services
EssilorLuxottica SA 4.10% Health Care
BNP Paribas SA 5.22% Banks

*Weightage for CAC companies has been calculated as per their market cap, as the actual weightage is unavailable

Source: Bloomberg
Date: 24th Nov 2021

A Consistently Rising Ratio

The ratio between the two indices is at a 25 year high of 0.797, which indicates that over the years CAC has continued to outperform the Spanish Index due to its globally renowned constituents with relatively higher valuation multiples. The forecast too remains optimistic for CAC 40 as several economies are reopening and luxury stocks are here to remain in fashion.


Source: Bloomberg
Date: 24th Nov 2021

Risks and Assumptions for Back-tested trading strategies
The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
Unforeseen events can lead to variation in performance from the tested trading strategy.
The tested result has been computed with price feeds available from Bloomberg.
The testing environment has not considered transaction or any other costs.
Trading indicators used for the purpose of testing has been provided by Bloomberg.
The strategy might suffer from data mining fallacy, selection bias and backfill bias.

Data Source: Bloomberg
Data as of: 24/11/2021

Arun Leslie John
Chief Market Analyst

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