Update: iShares MSCI AC Far East ex-Japan UCITS ETF

Dieser ETF ist auf Ebene der Einzeltitel stark diversifiziert, auf Länderebene und auch thematisch dominiert indes das Thema China. Finanztitel sind auf Branchenebene die Schwergewichte.

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Rolle im Portfolio

IShares MSCI AC Far East Ex-Japan provides exposure to companies domiciled in seven emerging and two developed Asian countries, excluding Japan.

This exchange-traded fund is somewhat concentrated in geographical exposure, with Chinese, South Korean and Taiwanese equities accounting for almost 70% of total index composition. By style, this fund is biased towards large- and giant-cap conglomerates.

This fund is skewed towards the financial sector, which accounts for over one third of index representation. As developing Asia catches up to advanced economies, demand-led industries, including telecommunications, technology, and consumer discretionary, will drive growth.

Given its narrow concentration, this fund can be used as a satellite holding for tactical investors willing to make a short-term bet on the direction of the Asian equity market.

This ETF distributes dividends quarterly and may be suitable for investors seeking income.

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Fundamentale Analyse

Being not only the index’s largest country exposure, but also the biggest economy in the region, China wields the most considerable influence on this fund. After three decades of remarkable double-digit growth, the Chinese economy is now slowing and moving towards a more sustainable growth level. As China converges to advanced economies, it will transition from an export-led growth model to a consumption-led and service-oriented one. The income gap between rural and urban China is narrowing, and the middle class is becoming more affluent. By 2022, household income is expected to increase at least twofold.

China’s technology sector is well-geared towards this transition. Tencent Holdings, one of the world’s largest Internet companies, and China mobile, the world’s biggest telecom operator (in terms of subscribers), together comprise over 6% of total index composition. Over the past 10 years, Tencent has maintained solid financials, but nearly half of the company’s revenue is generated from the highly competitive gaming industry. Looking forward, opportunities for China Mobile will be data-driven: Currently only about 50% of their 800 million subscribers use 3G/4G services. The largest risk for investors is that most listed companies in China are controlled by the government, which may put profitability goals behind political agendas.

Top holdings also include Chinese banks like China Construction, ICBC, and the Bank of China. Starting 2014, the Chinese government loosened its grip on the financial sector by liberalising interest rates, allowing institutions to price loans individually, promoting more competition and efficiency. The quality of bank balance sheet assets is a growing concern for investors though. Many bank loans are strongly exposed to the Chinese property market, which commentators are saying is in bubble territory.

South Korea, considered an emerging market by MSCI but a developed market by other index providers, is dominated by technology companies like Samsung Electronics, which also happens to be the largest constituent of the MSCI AC Far East ex-Japan Index.

Taiwan is the third-largest country in this index. Taiwan experienced healthy single-digit growth from 1981 until 1995 thanks to privatisation, industrialisation, and trade liberalisation. From 1995 onwards, Taiwan switched from a manufacturing economy to a service-oriented one and growth converged to advanced economy levels. Taiwan is known for its computer chips, electronics, and semiconductors. Two top-10 constituents are Taiwanese, including Taiwan Semiconductor and Hon Hai, which account for over 5% of the portfolio, respectively. Taiwan Semiconductor is the world’s largest contract semiconductor chip manufacturer, while Hon Hai is the world’s largest electronics contract manufacturer and counts Apple as its biggest customer.

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The MSCI AC Far East ex Japan Index is a free-float-adjusted market-cap-weighted index consisting of about 540 constituents spanning nine countries including China, South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, Thailand, and the Philippines. The index covers approximately 85% of the market capitalisation in these markets. New entrants must pass minimum requirements for liquidity and length of trading history. The index is reviewed quarterly and rebalanced semiannually with size cutoffs calculated. The index’s top country weightings are China (28%-33%), South Korea (19%-24%), Taiwan (14%-19%), Hong Kong (12%-17%), and Singapore (4%-9%). At the industry level, financials (32%-37%) is the largest sector, followed by technology (19%-24%), industrials (7%-12%) and consumer discretionary (6%-11%). There is limited concentration at the security level, with the top 10 constituents accounting for approximately 22%-27% of total index allocation. The top holdings are Samsung Electronics (4%-5%), Taiwan Semiconductor (3%-4%), Tencent (3%-4%), and China Mobile (2%-3%).

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This fund uses optimisation techniques to capture the MSCI AC Far East ex-Japan Net Return USD Index. From a liquidity standpoint, full physical replication can be expensive if the underlying securities are not easily accessible. Optimisation creates a multifactor risk model based on specific parameters such as size and volume and then generates a proxy basket of securities. This fund uses futures for cash equitisation purposes, which helps limit tracking error. IShares engages in securities lending to enhance the fund’s performance, lending up to 100% of the securities in its fund. Parent company and lending agent BlackRock covers the operational cost involved in securities lending for a 37.5% stake in the revenue generated from this activity, while the fund keeps 62.5%. Securities lending exposes the fund to counterparty risk, the possibility that the borrower will not return the securities it borrowed. To manage this risk, BlackRock takes collateral greater than the total loan value. Collateral levels vary between 102.5 and 112%. Acceptable collateral includes equities (up to 40%), government bonds and in some cases cash. Over the past 12 months--as of Sept 30, 2015--the fund lent out 16.64% of its AUM (on average) with a maximum on-loan of 22.85 % of its AUM, generating a securities lending return of 0.10%. BlackRock also provides indemnification for its iShares ETFs. If a borrower defaults and fails to return borrowed securities, BlackRock will replace them. The indemnification agreement is subject to changes without notice.

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The fund’s total expense ratio is 0.74%, which is pricier than other ETFs offering exposure to Asia ex-Japan equities. The tracking difference (fund return minus index return) over the past few years has varied from negative 0.60% to negative 1.21%, suggesting that the total annual holding cost can be lower or higher than the TER. Additional costs to investors associated with trading the ETF include bid-ask spreads and brokerage fees.

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The only other direct alternative tracking the same benchmark is HSBC MSCI AC Far East Ex-Japan ETF. It charges a total expense ratio of 0.60%.

Several providers offer ETFs with similar exposure. Db x-trackers, Lyxor, and UBS provide ETFs tracking the MSCI AC Asia ex-Japan NR Index. This benchmark spans the same countries as the MSCI AC Far East ex-Japan Index but also includes India, which accounts for almost 10% of index allocation. The UBS ETF offers the lowest total expense ratio of 0.45%.

A number of funds track the MSCI Emerging Markets Asia benchmark, including those offered by db x-trackers, Amundi, iShares, and SPDR. This index covers developing Asian countries only and doesn’t include advanced markets such as Singapore and Hong Kong. Amundi offers the ETF with the lowest TER of 0.20%.

HSBC also offers an ETF tracking the MSCI EM Far East Index, spanning seven emerging markets including China, Indonesia, Korea, Malaysia, the Philippines, Taiwan, and Thailand. This index is more exposed to China, accounting for almost 40% of total index composition. It charges a TER of 0.60%.

Alternatively, for investors seeking income, WisdomTree Emerging Asia Equity Income ETF (TER 0.54%) and db x-trackers MSCI AC Asia Ex-Japan High Divided Yield ETF (TER 0.65%) target dividend payers across Asian markets.

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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.