The FTSEurofirst indices are a new generation of European tradable indices that use the largest and most liquid stocks to enable investors to replicate the indices in their portfolios or use them to create financial products as cost-effectively and accurately as possible. The performance of these indices very closely resembles the global performance of the European stock markets. The FTSEurofirst 80 index is the euro zone index in the FTSEurofirst series and contains 80 stocks.

The purpose of a tradable index is to use a small number of stocks to represent the actual global performance of the investment area that it covers as accurately as possible. In the case of the FTSEurofirst 80 index, 80 stocks are used to represent the global performance of the euro zone equity markets as faithfully as possible, which are generally measured with reference to indices that include several hundred stocks. Such indices are essential to the financial industry for purposes of replication or creation of products based on indices. In both cases, the number of stocks in the index must be restricted to minimise the corresponding costs and include only the most liquid stocks in the indices.

At first, the primary goal was to simplify the monitoring and replication of the index. Only the largest markets in the euro zone based on market capitalisation are eligible. The index is reviewed once a year in September, and stocks that are removed from the index between two reviews are not replaced. This both makes replication easier and reduces costs. Innovations were then made to maximise the correlation between FTSEurofirst 80 index performance and global performance in the euro zone. The index includes the 60 highest value euro zone stocks by free-float value at the time of the review. The remaining 20 stocks are selected according to the sectors that they represent to reflect “ideal” sector weighting as accurately as possible, or more specifically, the sector weighting within the FTSE Eurozone index, which is the benchmark index in the FTSE range and includes more than 300 stocks. Finally, because it is so important to maintain the best possible correlation, the methodology provides for the enlargement of the index in the event of a major enlargement of the euro zone.

All told, there are only three reasons to add a new stock at the time of a review: (i) because the stock has a high enough size to be among the 60 biggest euro zone stocks by free-float value, (ii) because it is replacing a stock that was removed between two reviews, or (iii) because it is replacing a stock in order to improve sector weighting, thereby improving the quality of the sample. Moreover, there is only one reason to modify the sample between two reviews: the removal of a stock in the event of takeover or delisting. In this specific case, to avoid the creation of an entirely new line between two annual reviews, the stock is not replaced. Similarly, in the event of a de-merger of a stock in the sample, the two stocks created by the transaction are retained in the sample until the next review. In total, based on historical simulations, an average of eight changes are recorded yearly in the sample over a period going back to 1994. This rate of turnover is equal to similar indices, despite having a wider range of stocks.

Better coverage, better correlation, and transparency.
Better coverage since the FTSEurofirst 80 index has a larger sample and is managed according to an innovative methodology that places a greater emphasis on sector representation. Overall, it offers better coverage in terms of market capitalisation and sector coverage.
Better correlation owing to its better market coverage which translates into behaviour very similar to the global performance of the euro zone markets. This improved coverage is expressed in a lower tracking error in comparison with euro zone benchmark indices that include several hundred stocks.
Transparency since the FTSEurofirst 80 index is managed and reviewed according to objective procedures. In other words, changes in the sample can be projected through simple application of the methodology.

FTSEurofirst is the fruit of a partnership between FTSE Group, one of the world’s largest stock market index providers, and Euronext, Europe’s largest cross-border stock market. The FTSEurofirst indices are calculated by FTSE Group and accessible via Euronext cash and derivatives systems.

FTSE Group’s expertise provides the FTSEurofirst indices with the innovation, transparency, precision, and simplicity that it requires. Euronext, for its part, ensures that the cash and derivatives products based on these indices are distributed as widely as possible and that their liquidity is maximised.

The FTSEurofirst 80 index was launched on 29 April 2003.

The largest countries in the euro zone. For a market to be eligible, it must represent at least 2% of capitalisation of the FTSE Developed Europe index, which is the FTSE benchmark index for Europe’s “developed markets”. The purpose of this restriction is to limit transaction and monitoring costs related to the replication of the index. Germany, Spain, Italy, Finland, and the Euronext markets (France, Belgium, the Netherlands, and Portugal) are currently represented.

Among the 80 stocks that make up the FTSEurofirst 80 index sample, the first 60 are chosen based on their free-float capitalisation and the other 20 based on their free-float capitalisation, inclusion in the previous sample, and the sector weighting of the new sample as it compares to the sector weighting of the FTSE Eurozone index (benchmark index).

First, note that all stocks included are weighted according to their free-float value. The FTSEurofirst 80 index is calculated by FTSE Group in real time from 9.00 am to 5.30 pm (cet) based on quoted prices that come from each of the stock exchanges in the euro zone under consideration. The official closing price of the index is calculated on the basis of the closing price of each of the stocks included. Finally, the index is calculated every day from Monday to Friday upon the opening of one of the major markets in the euro zone (France, Italy, Germany, the Netherlands, and Spain).

The index is reviewed once a year on the Wednesday following the first Friday in September. Changes resulting from the review go into effect on the first trading day following the third Friday in September.

The stock is not replaced. Similarly, when a constituent is part of a de-merger (i.e., when a listed company is divided into two separate companies), the two new stocks stay within the index. To avoid readjusting the number of constituents to 80 between two annual reviews, market participants are not obliged to create another line between these reviews.

More than 60 products have been created with the FTSEurofirst 80 index, including listed products that may be traded on markets and unlisted products that are distributed by financial institutions.
In terms of listed products, Euronext.liffe, the derivatives branch of Euronext, has been offering futures and options based on the FTSEurofirst 80 index since June 2003. In particular, ETFs have been launched by Lyxor (Lyxor FTSEurofirst 80) on Euronext Paris and by BGI (iShares FSEurofirst 80) on Euronext Paris and Euronext Amsterdam. Listed structured funds have also been listed by SGAM (SGAM ETF Flexible FTSEurofirst 80 Mini, SGAM ETF Flexible FTSEurofirst 80 Size, SGAM ETF Leveraged FTSEurofirst) on Euronext Paris. Finally, Société Générale is offering warrants and turbos based on the index on Euronext Paris, and Grupo Santander has had its first certificate listed on Euronext Lisbon.
In terms of unlisted products, the FTSEurofirst 80 index has become one of the main underlying indices for guaranteed capital funds distributed by France’s major banking networks (Crédit Agricole, Caisse d’Epargne, La Banque Postale, CM-CIC) and is coming into use in other European countries such as Portugal and Greece.