Update: db x-trackers IBEX 35® UCITS ETF

Fundamentale Analyse

The Spanish stock market has experienced a turnaround in fortunes. Having lost 60% of its value from the pre-crisis highs of 2007 to the lows of mid-2012, it has rebounded strongly since, to become one of the best performing in Europe. This has come against the backdrop of an improved domestic macro outlook underpinned on the ECB’s ultra-loose monetary policy, plus easier and cheaper access to international funding by Spanish companies; particularly banks. 

The Spanish economy is now experiencing signs of a sustained recovery. Since the end of a gruelling recession in 2013, the pace of growth has steadily picked up; with GDP up 1.4% y/y in 2014. Initially driven by competitiveness gains and strong export growth, 2014 also saw a positive contribution of private consumption. Forecasts for 2015 and beyond point to above-2% GDP growth, and these could be revised higher on account of the expected positive effects of the ECB’s QE programme and the fall in energy prices. Importantly, the economy has also started to creat new jobs at a healthy pace, although the jobless rate remains unacceptably high at over 23%. Meanwhile, falling prices have come to offset the income squeeze resulting from the process of internal devaluation.

Despite a much more positive domestic macro backdrop, downside risks to Spanish equity valuations have increased since H2 2014. The Eurozone’s flimsy recovery, now compounded with renewed political risks, plus the slowdown in Latin America are key external concerns. Meanwhile, domestically, Spain is due for a general election at the end of 2015, and the risk is that anti-establishment parties may do well. Besides, the improvement financing terms for some economic agents has yet to fully feed through to SMEs, which are the backbone of the economy.

Even accounting for these risks, the Spanish stock market continues to be seen as an interesting opportunity in the mid to long-term; not least given the international dimension of most companies making up the IBEX 35, such as telecoms giant Telefonica or world’s top retailer Inditex. Meanwhile, the health of the Spanish banking sector is no longer seen as a cause for concern.

Indexkonstruktion

The IBEX 35 is a market capitalisation weighted index which comprises the 35 most liquid Spanish stocks traded on the Madrid Stock Exchange. The index is reviewed twice a year in June and December by a technical advisory committee. In order to be considered for inclusion, the average free float market capitalisation of the stock must be at least 0.30% of the total market capitalisation of the index. Financials is the biggest sector represented in the IBEX 35, accounting for around 40% of its value, followed by telecommunications (10-15%), utilities (10-15%) and industrials (around 10%). The IBEX 35 index is extremely top heavy from the perspective of individual names. As of this writing, the six largest components (e.g. Banco Santander, Telefonica, Inditex, BBVA, Iberdrola and Repsol YPF) account for around 60% of the index’s total market capitalisation. The individual statistical weightings of the remaining stocks stand in a 0.30-3.50% range.

Fondskonstruktion

db x-trackers uses physical replication to track the performance of the IBEX 35 total return index. Up until Dec 2013, the fund was swap-based. The fund is offered both on a dividend re-investing (1C) and distributing (1D) versions. The restricted stock universe making up the IBEX 35 index allows db x-trackers to fully replicate it. However, differences in statistical weightings between the fund and index’s components may occur. For the purposes of efficient management, the fund manager may make use of cash and index futures positions. However the combined weight of these components is unlikely to be significant. Indeed, a snapshot of the ETF’s basket as of this writing (early February 2015) showed that it did not amount to 0.7% of its value. For its suite of physically-replicated funds, db x-trackers may engage in securities lending in order to optimise the ETF’s tracking performance. Deutsche Bank Agency Securities Lending (DB ASL) acts as the lending agent. The ETF may lend out a maximum of 50% of its portfolio, although in practice the average percentage lent out tends to be well below such limit (e.g. 8.2% average annual with a maximum of 12.5% for this ETF as of this writing). All transactions are over-collateralised and the securities taken as collateral tend to be top-rated government bonds and blue chip stocks. Lending revenue is split 70/30 between the ETF and the lending agent, respectively. db x-trackers fully discloses all details pertaining to securities lending for this ETF in its website.

Gebühren

The annual total expense ratio (TER) for this ETF is 0.30%. The TER range for ETFs giving plain vanilla long exposure to the Spanish large-cap equity market stands at 0.25-0.33%. Additional costs potentially borne by investors and not included in the TER include bid/offer spreads and brokerage fees when buy/sell orders are placed for ETF shares.

Alternativen

As of this writing, measured in AUM terms, the db x-trackers IBEX 35 ETF stands second in AUM terms to the Lyxor IBEX 35 ETF. Also charging a TER of 0.30%, the Lyxor fund has also adopted physical replication. 

Down in the AUM stakes we find the BBVA Acción IBEX 35 (TER 0.33%; physical) and the Amundi ETF MSCI Spain (TER 0.25%; swap-based). The Amundi fund tracks the MSCI Spain index, which comprises fewer components than the IBEX 35.

Investors interested in Spanish mid-cap equities can consider the Lyxor IBEX MID ETF. This swap-based fund offers exposure to the performance of the largest 20 medium capitalisation companies listed in the Madrid Stock Exchange. It levies a TER of 0.50%.