Analyse/UBS-ETFs plc MSCI Emerging Markets TRN

Der MSCI Emerging Markets ist der Königsindex, wenn es um Schwellenländer-Investments geht. Breite Streuung über 830 Aktien und 21 Länder.

Rolle im Portfolio

The fund provides exposure to a wide array of mid- and large-cap companies within the world’s emerging regions. This broad category of countries has seen its position on the global stage rise significantly in recent years. Whereas this type of exposure would once have been considered a speculative tactical tool, it is increasingly becoming a core component of a globally-balanced portfolio.

Nevertheless, this can be a volatile area of the market. For example, the MSCI Emerging Markets Index has had an annualised standard deviation of 18.5% for the past 10 years, versus 14.1% for the MSCI World.

Correlations to developed equity exposure have remained consistent over the long-term, suggesting the fund provides less diversification benefit than may be preferred. Over the 10-year period through January 2014, the MSCI Emerging Markets Index showed a correlation to the USD-currency returns of the S&P 500, the MSCI Europe, and the broader MSCI World Index of 79%, 87% and 88%, respectively. Five-year correlations steadily remained at 81%, 88% and 87%.

The fund does not intend to make any distributions; therefore it may not suit an investor looking for regular investment income.

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Fundamentale Analyse

While economic growth in the developed world remains lacklustre despite rock-bottom interest rates, much of the developing world has maintained strong growth rates over the last few years. As the group’s largest economy--and the largest weighting in the index--China has a considerable impact on the MSCI Emerging Markets Index. China’s GDP grew by 7.7% in 2013, matching 2012’s performance. Though still robust, it is less than had become customary.

At the 2013 Plenum, the Chinese Communist Party’s economic planning meeting held every five years, President Xi Jinping hinted at plans to allow for greater market-driven growth. Already, the People’s Bank of China announced banks could set prime lending rates, and the government launched the Shanghai Pilot Free Trade Zone which will offer full currency convertibility of the Renminbi. The move highlights the gradual liberalisation of China’s monetary and economic policy, but China’s leadership has asserted it remains in control of the reforms. Even so, China has found itself tied up in ongoing territorial disputes, with Japan--China’s second largest trading partner. International concern over ethnic tensions and violent clashes in Uighur-dominated Xinjiang Province remains another sore point, with potential to disrupt regional economic expansion and discourage foreign investment.

South Korea’s economy has grown dramatically in the past few decades. Although still classified as an emerging market by MSCI, many consider South Korea a developed country. Much of the private sector growth has been driven by large conglomerates--such as Samsung, LG and Hyundai--but corporate governance concerns have dogged them as a result of their family-run structure. South Korea’s growth depends heavily on China, its largest market for exports.

Taiwan is also dependent on China as a trading partner. Its export-driven economy has expanded considerably in the last few decades but its recent growth has not been as robust as some of its neighbours'. Its GDP only grew 1.7% in 2013 but is forecasted by the Taiwanese government to hit 2.5% in 2014.

Thanks to a wealth of natural resources, Brazil benefited from the rise in commodity prices over the last decade and the growth of raw material exports to China. With China’s own exports slowing, however, the demand for raw materials could drop considerably. Further muddying the picture is the extensive shale gas discoveries in the U.S. Politically, Brazil is in flux. Widespread protests in the summer of 2013 over the cost of public transit showcased the country’s growing social unrest and public dissatisfaction with ineffective government spending.

Indeed, Brazil’s growth has slowed. From its record setting 7.5% in 2010, GDP growth tumbled to 0.9% in 2012 before recovering to 2.2% in the third quarter of 2013. The 2014 FIFA World Cup and 2016 Olympic Games have become major costs to the government, but which President Rousseff has justified through forecasted job creation and infrastructure development.

Over the last ten years, the MSCI Emerging Markets Index had an annualised return of 12.4% versus 7.4% for the MSCI World Index, which covers only developed market equities. Its price-to-earnings ratio was 12.1 at the end of December 2013, up from its low of 7.1 in May 2009.

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The MSCI Emerging Markets Index is a free-float market capitalisation-weighted index covering 21 emerging market countries around the world. It covers approximately 85% of the free float-adjusted market capitalisation of the component markets. The index has 822 constituents is reviewed quarterly, with size cut-offs recalculated semi-annually. The universe is initially screened for liquidity, as measured by the value and frequency of trading. The median constituent has a market capitalisation of $2.2 billion. The top geographic exposures are China (18-20% weighting) and South Korea (15-17%) followed by Taiwan and Brazil (10-12% each) and South Africa (6-8%). On a sector basis the index is broadly diversified. The top weight is financials, which makes up about 25-28% of the total, followed by information technology (14-17%), energy (10-12%), and materials and consumer discretionary (8-9% each). The index is not very concentrated, with typically 16-18% in the top 10 names. At the time of writing, the top position was Samsung Electronics Co., with a 3.7% weighting.

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The ETF uses synthetic replication to provide exposure to the underlying benchmark, combining unfunded and funded swap structures in a ratio that can change over time. As of February 2014, the fund held a portfolio of assets accounting for 85.4% of the fund’s net asset value and a fully-funded swap for the remaining 14.6%. UBS provides full transparency on the portfolio assets and the collateral backing the funded swap. At the time of writing, the portfolio assets consist of European and Japanese blue chip equities from a diverse set of industries. Collateral consists entirely of bonds, 53% of which are government bonds and the other 47% supranational bonds such as those issued by the European Central Bank and the European Bank for Reconstruction and Development. The exposure to counterparty UBS AG is monitored daily by the collateral manager, Lantern, the portfolio manager and the fund’s custodian, State Street Bank. At the time of writing, the level of collateralisation for the fully-funded swap was 102.27%. UBS aims to maintain all swap counterparty exposures collateralised at 105% at the end of each business day. Collateral is held via transfer of title in a segregated account with the fund’s custodian State Street Bank. Under the terms of the swaps, counterparty UBS AG agrees to provide the fund with exposure to the total return of the underlying index, net of any associated taxes, costs, or fees. The return from the swap agreements assumes that all dividends paid by the underlying stocks are reinvested in the index. The fund does not pay out any dividend distributions. The fund is Irish-domiciled and has the U.S. dollar as its base currency. The fund does not engage in securities lending.

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For its synthetic ETFs, UBS produces what it calls the ‘drag level’ for each fund, rather than showing the total expense ratio (TER) as it is calculated by other providers. The ‘drag level’ is a full tally of any fees or expenses charged to the fund over a 12-month period, including management fees and swap costs. It differs from a typical TER in that a TER does not usually include swap fees. Drag levels for each fund are reviewed by UBS on an annual basis, and may be changed once a year, but once set they will remain the same for the entire 12-month period. As of this writing, the fund charges a drag level of 0.95%. Additional costs potentially borne by the unitholder but not included in the drag level include bid-ask spreads and brokerage fees when buy and sell orders are placed for ETF shares.

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Many providers offer ETFs tracking the MSCI Emerging Markets Index, including Amundi, SPDR, ComStage, Lyxor, db x-trackers, iShares, Source and HSBC. The Vanguard FTSE Emerging Markets ETF tracks a different benchmark which lacks exposure to South Korea but matches the volatility of the MSCI Emerging Markets Index, with a 10-year standard deviation of 23.96% through January 2014. The MSCI Emerging Markets Index-tracking ETFs with the lowest TER are the Amundi product, the Vanguard product and the Source product, each with a TER of 0.45%.

For alternatives to market capitalisation-weighted exposures, there are the Ossiam ETF Emerging Markets Minimum Variance, the iShares MSCI Emerging Markets Minimum Volatility UCITS ETF and the PowerShares FTSE RAFI Emerging Markets ETF. While the first two funds follow a risk-oriented strategy, the third one employs a fundamental approach. These ‘Smart Beta’ ETFs tend to offer different sector and country exposures than the MSCI Emerging Markets Index, so performance drivers will likely differ.

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Über den Autor

Morningstar ETF Analysts  research hundreds of ETFs available to European investors. The Morningstar Rating for ETFs is based on a risk-adjusted performance measure