Update: db x-trackers Stoxx® Europe 600 UCITS ETF (DR)

Europäische Aktien gelten im Vergleich zu ihren US-Pendants als unterbewertet. Dieser ETF verschafft Anlegern einen breit diversifizierten Zugang zum hiesigen Aktienmarkt. Financials und britische Titel weisen das höchste Gewicht auf.

Dimitar Boyadzhiev 09.10.2015
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Rolle im Portfolio

The db x-trackers STOXX Europe 600 ETF offers exposure to large, mid and small-cap companies from developed Europe (i.e. Eurozone, UK, Switzerland and Nordics). As a region, Europe represents the world’s largest GDP and the second biggest equity market after the US.

This ETF is best deployed as a core equity holding, but it can also be used as a tactical tool by investors who want to overweight the region in their investment portfolio. However, investors who already have exposure to the Eurozone, UK, Switzerland or the Nordic countries through other vehicles should ensure that they do not unintentionally overweight exposure by too wide a margin to a particular region.

Despite its broad geographic exposure, this fund does not offer significant diversification benefits when used in conjunction with other funds providing broad exposure to developed markets. The STOXX Europe 600 index correlation with MSCI World and S&P 500 on a ten-year basis is almost perfect.

This fund does not distribute dividends, and therefore it is not suitable for income-seeking investors.

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Fundamentale Analyse

The STOXX Europe 600 Index has underperformed S&P 500 and MSCI World on a risk-adjusted basis over the past 10-, 5- 3, and 1-year periods out to end-July 2015. Examining the returns a little closer, we find that Eurozone countries –45% of the index – performed the worst over the 5- and 10-year periods, whereas the UK – 30-35% – has been the main drag in the 3- and 1-year periods.

The Eurozone's past sub-par performance is hardly surprising given the struggles of the Euro debt crisis. The UK economy, on the other hand, recovered well from the post-Lehman lows. However, its equity market is highly exposed to financials and energy (around 40% of MSCI UK), and the mix of structural issues within the banking system and falling energy prices have outweighed other positive domestic developments.

The Eurozone has seen a turnaround in fortunes in recent times –as evidenced by rising P/E ratios - to become one the most popular developed market equity investment propositions. This optimism has been largely driven by the market’s positive reaction to the ECB policy stance; particularly so the launch of quantitative easing in January 2015. Since then, the STOXX Europe 600 Index has outperformed MSCI World and S&P 500 by 2.3% and 3.4%, respectively, out to end July 2015.

Market participants expect that the ECB stance will boost the Eurozone’s economic performance going forward. Current data for the region still shows GDP growth below its historical average, with investment particularly lagging. Unemployment continues to be high, particularly in the periphery. At face value, the Eurozone could seem overvalued and vulnerable to downside risks. However, albeit proceeding at a slow pace, there has been an improvement in the main economic indicators.

The UK economy continues to perform strongly. However, UK equity market valuations may continue to be impacted by the falling trend on commodities prices and the ongoing structural changes within the banking sector. Furthermore, as the Bank of England gears up towards raising interest rates, many large-cap companies which derive their profits from overseas will have to contend with increased currency risk. As we write, the UK stands as a comparatively cheap investment proposition relative to broad developed markets. For example, at end July 2015 the MSCI UK index showed a P/E ratio of 16.41 versus 19.62 and 19.04 for MSCI World and MSCI Europe. However, it also offers the highest dividend yield. This shows that the UK stocks can eventually cushion sharp sell-offs.

Overall, the main short-term concern for investors in broad European equity is slowing growth in emerging markets. This is already taking its toll on the region’s large-cap companies, as a substantial proportion of their revenues are derived from the likes of China, Latin America and Africa. On a longer term horizon, investors should focus on risks to the Eurozone recovery (e.g. resurfacing of debt crisis) and the UK’s equity market reaching its potential.

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Indexkonstruktion

The STOXX Europe 600 Index includes approximately 85% of the equity market capitalisation of 18 countries across developed Europe. Components must meet minimum criteria for liquidity, as well as foreign ownership restrictions. The securities are weighted by free-float adjusted market capitalisation. The index is reviewed four times a year. The index offers exposure to approximately 600 large-, mid- and small-cap European companies, representing all major sectors. Accounting for about a third of the index weight, the UK is the most represented nation, followed by France, Switzerland and Germany (all about 13-17% of the index’s value). Meanwhile, it has fairly limited sector concentration, with financials accounting for 20-25%, followed by health care and consumer staples (both 10-15%). The index is also well-diversified at stock level, with about 20% of its total value comprised by the top ten constituents. As of this writing, the largest single equity exposures are Novartis, Nestle and Roche Holding, each with a weight of 2-3%.

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Fondskonstruktion

The fund uses full replication to track the performance of the MSCI Europe Index, meaning it aims to hold all constituents in the same weight as stipulated by the index. For the purposes of efficient management of cashflow, the fund may hold a small amount of index futures contracts. Their combined weight is capped at 2% of the portfolio’s value, although internally 1% target is aimed for. This ETF engages in securities lending in order to improve the ETFs tracking performance. Deutsche Bank Agency Securities Lending (DB ASL) acts as the lending agent. The fund may lend out a maximum of 50% of its portfolio, although in practice the average percentage lent out has tended to be below this limit. 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. As of this writing (12 Aug 2015), the annual average on loan was 4.93% for a net return of 0.05%.

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Gebühren

This fund levies a total expense ratio of 0.20%, which is towards the lower end of the range of ETFs tracking the broad European equity market. Other potential costs associated with holding this fund which are not included in the TER include rebalancing costs, bid-ask spreads and brokerage fees. Income generated from securities lending helps to recoup some of the total costs. For the one-year period ending July 2015 the fund has outperformed its benchmark by 0.11%

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Alternativen

Investors seeking to invest in European equities have access to over 75 ETFs of significant size, some of which marketed with in-built currency hedges. They can choose broad exposure to the region, including or excluding the United Kingdom, as well as restrict it to just the Eurozone. In addition, they can select from a growing range of strategic beta ETFs focusing on factors such as value, quality or dividends.

There are over 20 ETFs providing similar geographical exposure to this db x-trackers fund, with fees ranging from 0.12% to 0.51%. The most popular in AUM terms are the iShares MSCI Europe Dist (physical; 0.35%), iShares STOXX Europe 600 (physical; 0.20%) and db x-trackers MSCI Europe (DR) 1C (physical; 0.30%). The main difference between MSCI Europe and STOXX Europe 600 is that the latter offers exposure to small caps in addition to large and mid-caps.

There is also a growing number of strategic beta products focused on the European equity market. Currently, dividend and minimum volatility strategies dominate the landscape. Popular products in AUM terms include iShares EURO Dividend (physical; 0.40%), SPDR S&P Euro Dividend Aristocrats (physical; 0.30%) and iShares MSCI Europe Minimum Volatility (physical; 0.25%). Other strategies include growth, quality, value and multi-factors.

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Über den Autor

Dimitar Boyadzhiev  Dimitar Boyadzhiev ist Fund Analyst, European Passive Fund Research