Analyse: CS ETF (CH) on SMIM

Dieser ETF für Schweizer Nebenwerte bildet die 30 größten Aktien jenseits der SMI-Titel ab. Hohe Liquidität hat dabei ihren Preis.

Hortense Bioy, CFA 17.10.2012

Rolle im Portfolio

By providing broad exposure to Swiss mid-cap stocks, the CS ETF (CH) on SMIM can serve as a tool for asset allocators looking to control their market cap and style exposures. This fund is suitable as a core holding in a Swiss or European equity allocation given its broad holdings across various companies and sectors. The SMIM index is fairly diversified from the perspective of individual stocks, with the top 10 holdings accounting for 55% of the index’s weighting. However mid-cap shares tend to be more volatile than blue chips. For instance, the SMIM has exhibited an annualised standard deviation of 20% over the past five years, compared to 15% for the Swiss main benchmark SMI over the same period. This fund can also act as a tactical tool to overweight Swiss mid-cap equities within a diversified portfolio. It could be useful for those who want to place a bet on the near-to-medium-term prospects of this asset class as a whole under the belief that they represent a good value on a stand-alone basis or as compared to large-cap equities. Non-Swiss investors can also use the CS ETF (CH) on SMIM to gain exposure to the Swiss franc, one of the world’s most stable and strongest currencies. However these investors should be mindful that a strengthening franc will enhance the return of this fund as denominated in their home currencies, but a weakening franc will weigh on its performance as measured in their home currency.

Fundamentale Analyse

Midcap shares are often considered an attractive investment because of their greater growth potential and superior risk/reward profile compared to large cap shares. This theory has proven true in Switzerland where the SMIM has outperformed the SMI by about 5 percentage points on an annualised basis over the last ten years. On the flip side, the SMIM has also exhibited higher volatility as its constituents tend to be smaller, less diversified and less well-capitalised companies. This leaves mid-caps more sensitive to macroeconomic risks. Notwithstanding, we think that this fund contains strong, solid brand names including highly specialised companies like Geberit and Schindler, which are world leaders in their respective fields.

Buoyant worldwide demand for Swiss exports supported Switzerland’s economy after the financial crisis, until the appreciation of the Swiss franc--driven by its safe haven status--became a problem. The persistent strength of the currency prompted the Swiss National Bank (SNB) to set the minimum exchange rate of the euro at 1.20 francs in September 2011. This shift, which resulted effectively in a “peg” of the currency to the euro, has since changed the role of Swiss franc-denominated assets in investors’ portfolios. That is to say that they’ve somewhat lost their safe haven appeal.

A year later, the cap is still in place and will continue to be enforced by the SNB with the utmost determination as long as it is necessary. While the recent measures taken by the European Central Bank to tackle the euro-zone crisis have helped to ease pressure on the Swiss franc, the currency remains strong and is weighing on the Swiss economy. A strong franc is especially detrimental to exporters who see their selling prices and profit margins squeezed.

Another concern for exporters is the ongoing European sovereign debt crisis. Lingering uncertainty over its permanent resolution continues to depress consumer confidence and restrict spending in Europe. To offset slowing European consumption, Swiss companies have increased their exports to China and are now more dependent than ever on the latter’s economic growth. China is currently the fourth biggest importer of Swiss products behind Germany, the US and Italy. In 4 or 5 years, should the current trend continue, China is expected to become the second largest buyer of Swiss products after Germany.

Indexkonstruktion

The SMIM index (SMI Mid) comprises the 30 largest mid-cap stocks on the Swiss equity market that are not included in the blue chip SMI index. As in the case of the SMI, it is free-float-capital weighted and the components are selected according to market capitalisation and turnover. Industrials is the most heavily weighted sector representing about a third of the index's weighting, followed by financials (25-27%), consumer goods (16-17%) and healthcare (10-12%). Two industrial stocks top the index, Geberit, a European market leader in sanitary technology being the largest constituent with an 7-9% weighting, followed by Schindler, the world's second largest maker of elevators. The third largest stock represented is Sonovan.

Fondskonstruktion

The CS ETF (CH) on SMIM uses full physical replication to track the performance of the SMIM index on a total return basis. The fund buys the securities within the index and can invest up to 5% of its assets in SMIM futures. The CS ETF (CH) on SMIM engages in securities lending, which serves to generate additional revenue. While Credit Suisse allows up to 95% of a fund’s assets to be lent out, in practice average assets on loan at any one time are lower --the average on-loan level was between 8% and 25% over the last three fiscal years. For the Swiss ETFs, Credit Suisse borrows on a principal basis from the funds. In this case, the fund has counterparty exposure only to Credit Suisse. Credit Suisse may then on-lend the securities to a number of different market participants, but Credit Suisse stands between the fund and the counterparty risk of these other participants. To protect the fund, Credit Suisse provides collateral greater than the loan value on a daily basis into an account that is separate from the assets of Credit Suisse. Collateral levels vary from 102% to 115% of the loan amount, depending on the assets on loan and the assets provided as collateral. Collateral and loans are marked to market on a daily basis. At the time of writing, collateral is made up of a majority of government bonds and its value is equivalent at 105% of the loan's value. 50% of the gross securities lending revenues generated by Credit Suisse on behalf of the fund are passed on to the fund. Net return for the year ended June 2012 was 9.4%. Dividends (including withholding receivables) are reinvested in both the SMIM constituents and SMIM futures depending on the amount and timeframe until the next distribution date. Credit Suisse performs several interim distributions (up to four) especially during the first half of each calendar year due to the large number of dividends during that time. It is worth noting that the Swiss-domiciled CS ETF (CH) on SMIM is not compliant with UCITS and therefore is only authorised for commercial distribution in Switzerland and Liechtenstein.

Gebühren

This fund levies a 0.49% total expense ratio, which is at the top end of the range for ETFs tracking the SMIM.

Alternativen

Investors seeking a cheaper alternative (speaking strictly in terms of TER) to the CS ETF (CH) on SMIM can turn to the UBS-IS - SMIM ETF, which has a TER of 0.40%. But this lower fee comes at the expense of lower liquidity as measured by the 3-month average daily trading volume. The CS ETF (CH) on SMIM is the oldest, largest and most liquid fund offering exposure to the Swiss midcap equity market. Alternatively, those interested in the large-cap shares segment of the Swiss market could consider the CS ETF (CH) on SLI, which comprises the 30 largest and most liquid stocks on the Swiss stock exchange. It has a capping mechanism, whereby the index weighting of the four largest constituents is limited to 9% and the weighting of all other components to 4.5%. This capping mechanism provides stock and sector diversification. The CS ETF (CH) on SLI has a TER of 0.40%. UBS and db X-trackers provide cheaper options at a TER of 0.35%, but they have a lower 3-month average daily trading volume than the CS ETF (CH) on SLI.

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Über den Autor Hortense Bioy, CFA

Hortense Bioy, CFA  is director of passive fund research in Europe.