Rolle im Portfolio
The CS MSCI EMU Large Cap ETF is suitable as a core portfolio holding to obtain exposure to equities domiciled in the European Economic and Monetary Union (EMU). The fund can also be used as a tactical tool to overweight a portfolio's exposure to the currency bloc's equities, or it can be shorted to bet against the performance of the underlying equities to hedge an existing position.
The exclusion of non-EMU companies results in greater sector concentration when compared to a broader European index like the STOXX Europe 600. In particular, this index has a larger concentration in financial services and telecommunications shares and has less exposure to the healthcare sector than the STOXX Europe 600 index. The historical correlation between this index and its broader comparables has been high; for instance, the trailing three-year correlation between the STOXX Europe 600 index and the MSCI EMU index is 0.97.
Fundamentale Analyse
The recovery in the eurozone remains mixed, and the general consensus is for a slowdown well into 2012. The European Commission expect sluggish GDP growth of 1.6% in 2011 and a meagre 0.6% in 2012. The ECB cut interest rates from 1.25% to 1.00% at its December policy meeting as inflation fears have subsided and the central bank has noted the slowdown of the economy. Inflation dropped to 2.8% in December down from 3% the previous month; marking the first decline since July. Many market participants expect inflation to come down quickly after passing its peak. Low inflation could facilitate to further interest rate cuts by the ECB to support the fragile economy. As eurozone interest rates converge with relatively lower rates in the US or the UK, it could have a negative impact on exchange rates as the interest rate differential was one factor helping the Euro to remain relatively resilient during the sovereign crisis. A weak currency could support export-driven members like Germany and the Netherlands.
Even though the PMI for the eurozone increased from 47 in November to 48.3 in December, the indicator remains below 50. A reading above 50 indicates expansion. Despite a slowdown in the rate of contraction, many market participants expect the eurozone to fall back into a mild recession in early 2012. The monetary union’s GDP grew by a meagre 0.2% during the third quarter, marking the weakest expansion since the region exited from recession almost 3 years ago.
Germany remains the eurozone’s economic motor, growing by 0.5% in Q3. In addition growth for the second quarter was revised upwards from 0.2% to 0.3%. Furthermore, in December, Germany’s unemployment rate fell to its lowest level since 1991, dropping 0.1% to 6.8%. In contrast, Spain’s unemployment rate of around 22% highlights the huge divergence amongst eurozone countries.
In France, industrial output increased by 1.1% in November compared to an expected contraction of 0.2%. In addition, the credit-rating agency Fitch stated that they don’t expect France to be downgraded after revising its outlook to negative from stable in December last year. A downgrade of the country could potentially increase the cost of future rescue efforts for the EFSF and thereby threaten the ultimate resolution of the sovereign debt crisis. However, France’s national statistics bureau expects GDP to contract by 0.2% in Q4 2011 and by 0.1% in Q1 2012 before growing by 0.1% during the second quarter of the year.
An improving labour market in the US and better economic data in China could support Europe’s export-driven economies. As an important export market for Europe, the strength of China is vital to Europe. Notably, Germany’s car markers continue to benefit from growing demand in Asia. A depreciating Euro could further help exports. However, exports within the eurozone are expected to remain weak as long as the peripheral crisis remains unresolved.
Indexkonstruktion
The MSCI EMU Large Cap NR USD index includes approximately 70% of the free-float adjusted market capitalisation of all publicly-traded companies from European Monetary Union countries. Components must meet minimum criteria for liquidity, foreign ownership, as well as a waiting period for newly-listed stocks. The securities are weighed by free-float adjusted market capitalisation. Because closely held firms will have a smaller piece of their aggregate market capitalisation floated on public exchanges, the free float adjustment serves to ensure the underlying liquidity of the holdings is superior relative to a pure market capitalisation weighting. The index is reviewed quarterly, with the semi-annual reviews scheduled for May and November more comprehensive than the February and August reviews. As of this writing, there are 120 companies included in the index. French and German equities make up more than 60% of the index. The top sector weighting is financials, which comprise almost 20% of the index.
Fondskonstruktion
The CS MSCI EMU Large Cap ETF uses physical replication techniques to track the performance of the MSCI EMU Large Cap index. Because of the size and liquidity of the stocks in the index, the fund does not need to use sampling to keep costs low but can instead hold every stock listed in the index at their index weighting, virtually eliminating one potential source of tracking error. CS engages in securities lending to generate additional income, sharing half of the proceeds with fund holders. This practice introduces counter-party risk as the party to whom the securities are lent may default. To minimise this risk CS requires borrowers to post collateral that is at a minimum 100% of the value of the loan. This collateral is then marked-to-market on a daily basis. The additional income generated through securities lending allows the ETF to reduce tracking difference to the index. It is left to investors to decide whether or not this is adequate compensation for the level of risk entailed. The ETF distributes dividends annually. Movements in the benchmark in excess of returns on cash during the period between when the fund receives dividends and the date it distributes them will result in 'cash drag', which can be a source of tracking error. The ETF is domiciled in Luxembourg and trades on the Deutsche Börse, the SIX Swiss Exchange, the London Stock Exchange and the Borsa Italiana.
Gebühren
The ETF has a total expense ratio (TER) of 0.49%, substantially higher than its nearest alternatives.
Alternativen
As of this writing there is a huge selecting of ETFs tracking eurozone large cap companies. The largest in terms of total assets under management is the Lyxor ETF EURO STOXX 50. This ETF uses synthetic replication and levies a TER of 0.25%. db X-trackers offers a swap-based ETF tracking the EURO STOXX 50 Index that charges no management fees.
A more like-for-like alternative is offered by UBS. The UBS-ETF MSCI EMU uses full replication and levies a TER of 0.35%. Investors preferring a pan-European exposure can make use of the German-domiciled iShares STOXX Europe 600 ETF. This ETF is a physically replicated fund which has a TER of 0.21%. It also has by far the most on-exchange volume of any of the ETFs tracking this index.
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