The CAC 40 is the most popular measure of stocks on the Euronext Paris (formerly the Paris Bourse) and could be considered France’s equivalent of America's Dow Jones Industrial Average (DJIA). The index 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 CAC 40 started with a base value of 1,000 in December 1987 and continued to operate on the total market capitalization system until 2003 when it was changed to free float-adjusted market capitalization.

The CAC 40 not only acts as the prime benchmark for Euronext Paris, but also serves as an underlying index for exchange-traded funds, structured products, funds, futures and options. Companies that comprise the CAC 40 index include Total SE (TOT), BNP Paribas SA (BNPQY), Orange S.A. (ORAN), Sanofi S.A. (SNY), Société Générale S.A. (GLE) and ArcelorMittal (MT). There is a 15% weighing capitalization on all index constituents.

Exposure Via ETF

A number of exchange-traded funds (ETFs) follow the CAC 40. Among them are:

Lyxor ETF CAC 40 (CAC)

The Lyxor ETF CAC 40 aims to provide low-cost, large-cap exposure to the Paris Bourse. It's suitable for all categories of investors looking to add some French flavor to their core portfolio. The lion's share of the fund is invested in French stocks, with small allocations to Luxembourg, Belgium and the Netherlands. The top five sector allocations are consumer goods (18.1%), financials (17.1%), industrials (17%), healthcare (12.4%) and oil and gas (11.5%). The fund was launched in 2000 and holds about $3.7 billion. It carries an expense ratio of 0.25%.

BNP Paribas Easy CAC 40 (E40)

The BNP Paribas Easy CAC 40 ETF launched in 2005 and aims to replicate the performance of the CAC 40 index. It has a recommended investment horizon of five years (as per its prospectus), holds about $234.13 million, and carries an annual charge of 0.25%. Its top sector allocations are consumer goods, financials, industrials, oil and gas, and healthcare.

Amundi ETF CAC 40 (C40)

The objective of the Amundi ETF CAC 40 is to mirror the performance of CAC 40 index without regard to market trends. The fund has approximately $1,335.12 million under management and carries an expense ratio of 0.25%. The fund's top holdings are LVMH Moët Hennessy, Total SE, Sanofi, L'Oreal, and Schneider Elect SE. Its top 10 holdings account for more than half of the fund's assets.

DBXT CAC 40 ETF (X40)

The DBXT CAC 40 ETF launched in 2008 and holds $139.87 million. The fund's top holdings are Total SA, Sanofi, LVMH Moët Hennessy, Airbus SE, and L'Oreal. The ETF's top sectors include industrials (18.42%), consumer cyclical (17.95%), consumer defensive (12.02%), energy (11.94%), and financial services (11.77%).

ComStage ETF CAC 40 (PC40)

Launched in 2010, this ETF has about $10 million under management and carries an expense ratio of 0.20%. Its top sector allocations are financial services, industrials, healthcare, consumer cyclical, and consumer defensive; these sectors account for about 60% of the fund.

The Bottom Line

In addition to the exchange-traded funds listed above, there are few leveraged and short ETFs (also called inverse or bear ETFs) that track CAC 40. Leveraged and short ETFs are riskier as compared to regular ETFs, and thus are not suitable for all investors. Another option that can be explored by investors looking to invest in the same region is iShares MSCI France UCITS ETF (EWQ). The fund was launched on March 12, 1996, and tracks the MSCI French Index instead of CAC 40.