Analyse: CS ETF (IE) on MSCI EMU ETF

Dieser ETF bietet einen breiteren Zugang zu Eurozonen-Aktien als der Euro Stoxx 50/Replikation mit optimierten Sampling.

Lee Davidson 31.08.2012

Rolle im Portfolio

The CS ETF (IE) on MSCI EMU ETF is suitable as a core equity holding to gain exposure to stocks domiciled in the European Monetary Union (EMU). The exclusion of non-EMU companies from the benchmark index increases its sector concentration compared to broader European indices such as the STOXX Europe 600. More specifically, the MSCI EMU tends to overweight financials, telecom, and utilities and underweight healthcare compared to the STOXX Europe 600. Despite these differences in sector allocation, the two indices have maintained nearly perfect positive correlation over the past 10 years (~99%). Over the same timeframe, the MSCI EMU index has also exhibited a high historical correlation (~95%) to broad international equity indices (e.g. MSCI World GR), which reflects the multinational nature of the business lines of many of the companies making up the index.

Fundamentale Analyse

As Europe's leaders debate the future of the euro, Europe's citizens are losing faith and its businesses are struggling to produce. Over the past month, Eurozone policymakers have agreed to a €100bn bailout for Spanish banks, the European Central Bank (ECB) has cut its key lending rate to an historic low of 0.75%, and the ECB was granted the responsibility to supervise banking in the Eurozone. Steps towards looser monetary policy and tighter financial integration have certainly been received positively by markets, though they have done little to ease the excessive debt burdens and high borrowing costs faced by peripheral eurozone nations, like Spain and Italy. As Eurozone leadership continues to work, the once tentative optimism for a quick resolution to the crisis has largely evaporated, especially among the Eurozone's consumer base.

According to the European Commission's latest report, consumer confidence across the Eurozone declined from 89.9 to 87.9 in July marking the fourth consecutive monthly decline. Hard consumer data also points to a broad loss of confidence for Eurozone consumers as retail sales declined 1.2% in June from last year. Despite the relative strength of German consumption in the first quarter, German retail sales have declined for three consecutive months, most recently registering a 0.1% drop in June. Given that consumer spending makes up roughly half of eurozone GDP, sustained declines in retail sales and other consumer-based metrics do not bode well for any upside surprises to near-term eurozone growth.

Unemployment in the Eurozone continues to be staggering. It seems that every month a new unemployment record for the euro-era is set. Most recently, the Eurozone unemployment rate reached 11.2% in June buoyed by job losses in most eurozone nations. In particular, the manufacturing sector looks to be at its weakest, from an employment perspective, in over three years. Country-specific unemployment rates have reached their peak in Spain at 25% overall and 52% for the youth. Despite surging unemployment, eurozone leaders have not yet backed off implementing austerity measures, which economists widely believe will further exacerbate the unemployment situation. For instance, in Spain, Prime Minister Rajoy recently announced that his government would implement €65bn worth of tax increases and spending cuts in an effort to meet their budget deficit target of 5.3% this year.

Accompanying the falloff in consumer demand and rising unemployment, lackluster manufacturing and service production data provide further evidence that the eurozone economy contracted in the second quarter. To arrive at this consensus, most economists have pointed to Markit’s Purchasing Manager Index (PMI) data, which measures monthly expansion/contraction of output, where a reading above 50 indicates expansion. In July, the eurozone PMI came in at 46.5, increasing over June but still indicating a steep downturn in regional productivity. Over the past few months, manufacturing and service sector activity declined at its quickest pace in the last three years. As a result of failing output, Markit is predicting that eurozone growth was roughly -0.6% for the second quarter.


The MSCI EMU NR index includes approximately 85% 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. Eligible securities are weighed by free-float adjusted market capitalisation. Because closely held firms will have a smaller share of their aggregate market capitalisation floated on public exchanges, the free-float adjustment serves to ensure that the underlying liquidity of the holdings is superior relative to a pure market capitalisation weighting. The index is reviewed quarterly, with May and November semi-annual reviews tending to be more comprehensive than those undertaken in February and August. As of this writing, there are 249 companies included in the index. French and German equities make up approximately 64% of the index by value. The top sector weighting is financials (~18%), followed by industrials (~13%), consumer discretionary (~12%), and consumer staples (~12%).


The CS ETF (IE) on MSCI EMU uses physical replication techniques to track the performance of the MSCI EMU index. Given the large number of index constituents, the ETF engages in an optimised sampling technique to track the reference index. Optimised sampling entails the fund investing in a representative selection rather than in all the securities making up the reference index. This selection is based on a mathematical optimisation procedure with the aim of realising the lowest divergence from the reference index. At the time of this writing, the fund holds 252 of the 274 securities in the MSCI EMU. The ETF reinvests all dividends directly into the fund. This procedure is seen as minimising tracking error by eliminating any source of cash drag. The fund is domiciled in Ireland and was launched in December 2010. At this time, our understanding is that Credit Suisse does not engage in securities lending for its Irish domiciled funds. Its base currency is Euros.


CS ETF (IE) on MSCI EMU levies a total expense ratio (TER) equal to 0.33%, which approximates the norm for ETFs providing exposure to the Eurozone equity market.


At the time of writing, there are a significant number of ETFs tracking the broad Eurozone equity market. In seeking this broad equity exposure, investors should primarily consider their desired level of index concentration from both a sector and geographic perspective. Investors seeking strictly large-cap European exposure are likely to consider ETFs that track the DJ Euro STOXX 50 index as this is the most widely-tracked index in Europe. There are plenty of alternatives available from multiple providers, including iShares, Credit Suisse, HSBC, ComStage, Source, Lyxor, UBS, ETFLab and BBVA. The largest and most heavily-traded ETF tracking this index is the Lyxor ETF EURO STOXX 50 A. The fund charges a TER of 0.25%. The cheapest option (speaking strictly in terms of TER) is offered by db X-trackers with a TER of 0.00%.

Investors preferring a pan-European exposure, including companies outside the Eurozone, can look for ETFs tracking broader European large cap indices such as the MSCI Europe and the STOXX Europe 600. Again here, there is no shortage of options, with all the major providers offering funds that track the MSCI Europe at TERs ranging from 0.25% to 0.35%. Investors preferring the STOXX Europe 600 index could consider the iShares STOXX Europe 600 with a TER of 0.21%. This fund has by far the most on-exchange volume of any of the ETFs tracking the STOXX Europe 600.


Über den Autor

Lee Davidson  is an ETF analyst with Morningstar Europe.