Analyse/iShares MSCI EMU Small Cap

Dieser Index deckt die kleineren Unternehmen der Eurozone ab. Symrise, Wirecard und Co. machen gut ein Viertel des Index aus. Branchenseitig stehen Industriewerte und Konsumgüter-Aktien im Vordergrund.

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The iShares MSCI EMU Small Cap ETF provides exposure to eurozone small-cap equities. The index correlated 90% with the MSCI EMU Index and 66% with the MSCI World USD Index over the last three years; hence diversification benefits appear limited, at least in the Eurozone.

In contrast to large and mid cap companies, small caps typically generate most of their revenue regionally. Therefore, this ETF might be a purer play on the eurozone economy compared to ETFs tracking mid or large cap indices as they often generate more than 50% of their revenue from outside Europe.

As the MSCI EMU Small Cap Index is well diversified across individual holdings and sectors, the ETF can best be deployed as a core holding complementing mid- and large-cap equity holdings.

For tactical purposes, this ETF might be suitable for investors believing that large cap companies will deploy their cash reserves through acquisitions in the hunt for external growth targeting small- and mid-cap companies.

Before considering an investment, investors should review their existing portfolio holdings to avoid unintentionally creating concentrated single country exposure. This is especially the case for Germany (which represents 26% of the index’s value) and France (17%).

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Fundamentale Analyse

During recessions, large-cap companies will seek to cut costs and preserve cash, leaving them with huge cash reserves after the crisis. In the quarters following the crisis, many of these same companies unload their cash by acquiring small cap firms, which in part explains the outperformance of small caps coming out of recessions. Valuations for the EURO STOXX Small Index have increased sharply after hitting a near-low P/E ratio of 10.9 in September 2013. As of this writing, the index trades at a P/E multiple of 15.5, compared to 18.2 for the EURO STOXX 50 Index; the gap between the two indices has narrowed recently.

Financials are the largest sector exposure within the EURO STOXX Small Index, representing 31% of its value. Banks and real estate firms represent about 70% of the overall financial sector exposure. This should come as no surprise, as real estate companies are usually found in the small- to mid-cap size segment. Small cap companies tend to generate most of their revenue regionally.

The latest economic data points towards an accelerating recovery in the Eurozone and, more importantly, a recovery that is also spreading to the peripheral countries. Despite a slight drop in the region’s composite PMI in March to 53.1, from a 32-month high of 53.3 in February, overall the data suggest the strongest economic performance in the past three years. Indeed, the PMI data is consistent with an estimated 0.5% q/q GDP growth for the Eurozone in Q1 2014, to further build on the 0.3% q/q expansion recorded in Q4 2013. 

The positive view from Markit is also shared by S&P, which recently raised its growth forecasts and now expects the Eurozone to expand by 1% this year and 1.5% in 2015. The European Commission is a bit more optimistic, pencilling in 1.2% and 1.8%, respectively. However, downside risks to these forecasts do remain. A key concern is the slowing economy in emerging markets, particularly China, as current economic growth depends heavily on international trade. Meanwhile, the Crimea crisis has now opened up a risk scenario much closer to home.  Germany’s Ifo index dropped by 0.6 points to 110.7 in March on account of uncertainty surrounding the Crimea situation and disappointing data from emerging markets.

These external risks underline the point that healthier long-term growth needs to also feed from a solid contribution of the Eurozone’s domestic demand; in particular private consumption. This remains a key challenge, as the economic recovery is not strong enough to considerably improve the job market. The Eurozone unemployment rate at 12.0% in March, is only ever slightly down from the 12.1% recorded a year earlier. However, this stability is in stark contrast to the previous years’ high rate of job losses, thus underlining the improved situation and rising business confidence.

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The MSCI EMU Small Cap Index represents eurozone stocks from the MSCI EMU Index. The index covers around 430 companies, representing about 14% of the free float adjusted market capitalisation of the MSCI EMU Index. Currently, the index includes over 10 sectors across more than 10 countries. As of writing the index’s largest single country exposure is Germany (26% of the index’s value), followed by France (17%) and Italy (17%). The biggest sector concentration is industrials (24%), followed by financials (19%) and consumer discretionary (16%).

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The iShares MSCI EMU Small Cap ETF uses the physical replication method to track its reference index. The fund uses optimised sampling to hold only 410 of the 430+ stocks of the MSCI EMU Small Cap Index. iShares may engage in securities lending within this fund to generate additional revenues for the fund. The lending revenues generated from this activity are split 60/40 between the fund and the lending agent BlackRock, whereby BlackRock covers the costs involved. To protect the fund from a borrower’s default, BlackRock takes collateral greater than the loan value. Collateral levels vary from 102.5% to 112% of the value of securities on loan, depending on the assets provided by the borrower as collateral. Additional counterparty risk mitigation measures include borrower default indemnification. Specifically, BlackRock commits to replace the securities that a borrower would fail to return. The indemnification arrangement is subject to changes, and in some cases without notice. Finally, BackRock limits the amount of assets that can be lent out by this ETF at 50%.Cash received as dividends from the underlying stocks is held in the fund’s income account until it is distributed to fund holders. Distributions are made on a quarterly basis. This dividend treatment can potentially create a drag on returns in upward trending markets as dividends are not reinvested into the fund. In practice this cuts both ways. It could also result in outperformance if the benchmark falls in the interim period.

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The fund levies a total expense ratio of 0.58%. This is the most expensive ETF tracking European small cap equities. Other potential costs associated with holding this fund which are not included in the TER include rebalancing costs, bid-ask spreads and brokerage fees.

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As of writing, there are four alternative ETFs tracking eurozone small cap equities. The largest in terms of total assets under management is the iShares EURO Stoxx Small ETF. For this fund, iShares also uses optimised sampling and levies a TER of 0.40%. The EURO Stoxx Small Index is more exposed to financials (31%) and the index’s largest single country exposure is France (24%).

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Über den Autor

Gordon Rose, CIIA, CAIA,

Gordon Rose, CIIA, CAIA,  war von 2011 bis 2014 Fondsanalyst bei Morningstar.