Analyse: db x-trackers MSCI Korea TRN Index UCITS ETF

Wer auf Korea setzt, hat mit Samsung einen globalen Elektronik-Konzern im Portfoio - allerdings auch das Risiko eines fallenden Yens und einer Abschwächung der chinesischen Wirtschaft.

Rolle im Portfolio

 

The db x-trackers MSCI Korea TRN Index UCITS ETF offers exposure to the broad Korea equity market, with its underlying benchmark, the MSCI Korea Index, covering about 85% of the South Korea equity universe. Given its single-country exposure, this ETF would be ideal as a core equity holding for investors aiming to build a Korean-centric investment portfolio. Meanwhile, this ETF can take on a satellite holding role for investors looking to gain exposures to Korea within a broader geographical portfolio. This ETF can also be used tactically to roll out bets on the Korean market.

South Korea is an export-driven economy, with exports of goods and services accounting for 57% of GDP in 2012. As a result the MSCI Korea Index has a heavy tilt to large exporters with a cyclical orientation, mainly within the IT (39%), consumer discretionary (17%) and industrials (11%) sectors. Investors who are bullish on global growth can consider this ETF.

Over the past three years, the MSCI Korea Index has been more correlated to emerging markets (e.g. 91% correlation to the MSCI Emerging Markets Index and 94% to the MSCI EM Asia Index) than to developed markets (e.g. 75% correlation to the MSCI World Index and 71% to the S&P 500 Index). In our view, these figures suggest that the diversification effect of this ETF to a global portfolio is limited.

Interestingly, the MSCI Korea Index has shown a lower correlation with the domestic Chinese indices (e.g. 35% correlation to the MSCI China A Index and 37% to the CSI 300 Index in the past 3 years; 24% and 26% respectively in the past year). These figures suggest that this ETF could offer good degree of diversification for investors with a portfolio concentrated in domestic Chinese equities.

South Korea accounts for quite a considerable weighting in some of the emerging market equity indices (e.g. 15% in the MSCI Emerging Markets Index and 24% in the MSCI Emerging Asia Index). It is worth noting that MSCI has kept South Korea under review for potential elevation to developed market status, while FTSE already considers it as a developed market in its international index. We therefore advice investors to check their existing exposure to South Korea to avoid unintentionally creating concentrated exposure in Korean equities and “emerging markets” according to the chosen definition. 

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Fundamentale Analyse

 

South Korea is the fourth-largest economy in Asia after China, Japan and India. It is an export-driven economy (e.g. exports accounted for 57% of GDP in 2012). In July 2012 the Bank of Korea lowered borrowing rates for the first time in more than 3 years and again in Oct-2012 and May-2013. The Bank cut the main benchmark rates by 25bps each time to 2.50% and unveiled a stimulus plan in an effort to boost the economy after Q1 2013 GDP growth registered at 0.9% QoQ or 1.5% YoY, somewhat lower than the government’s expectation of 2.3% growth for 2013 (2012 GDP growth already slowed to 2.0% from 3.6% in 2011). The potential for a more pronounced growth slowdown upon further deterioration of global economic conditions is one of the main risks facing investors in the country. In addition, the depreciating Yen has made Japanese goods far more competitive, placing serious pressure on Korean manufacturers. Besides, investors should always remain aware that political and military tensions between South and North Korea always tend to have a negative impact on South Korea’s financial markets.

Samsung Electronics (005930) accounts for 27% of the index and it is by far its largest holding. This technology giant (manufacturer of consumer electronics, mobile phones, memory chips and LCD panels), has become the world’s largest handset maker with a 32.7% market share of the world’s smartphone market, followed by Apple (AAPL) at 17.3% as of Q1 2013, according to IDC. Although we expect the solid demand in electronic products, such as tablet PCs and smartphones, and Samsung’s innovations to continue driving its profitability, market expectations for sales growth have been high and sales results for some of the firm’s latest models have come in below market forecasts. Meanwhile, the slowdown in global economic conditions, the severe competition and numerous patent lawsuits around the world between Samsung and Apple could weigh on Samsung’s earnings and share price performance. Adding other IT firms, IT exposure accounts for 39% of the index.

Consumer discretionary is the second largest exposure of the index, accounting for 17% of its market capitalisation. This exposure consists largely of carmakers and their related business. The main exponents are Hyundai Motor (the second-largest holding of the index at 5%), Hyundai Mobis (3%) and Kia Motors (2%). Sales for these companies are highly export-driven (e.g. 64% for Hyundai for the first 5 months of 2013).

The other three main sector exposures for this ETF are financials (14%), industrials (11%) and materials (9%). The financials sector consists of banks, securities and insurance firms while the industrials sector consists of some of the world’s largest shipbuilders as well as construction and engineering firms. The materials sector includes the steel maker POSCO (005490, the third-largest holding of the ETF at 3%) and chemical companies. The industrials and materials sectors are largely export-driven and so their performance would be affected by the global economy and also intense competition. As it pertains the financials sector, the highly indebted household situation of the nation is an area to be cautious on (e.g. debt-to-disposable income ratio rose to 163.7% in 2011 from 158% in 2010). 

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Indexkonstruktion

This ETF tracks the MSCI Total Return Net Korea Index, a free-float market capitalisation weighted index representing 10 sectors across the Korean stock market with 134 constituent stocks as of this writing. Component stocks have to fulfill MSCI’s size, liquidity and free float criteria to be included in the index. MSCI uses the official exchange closing prices to calculate the index’s value. The index is reviewed on a semi-annual basis with minor quarterly reviews to accurately reflect the evolving marketplace. The index is top heavy with the 10 largest constituents accounting for 54% of the total market capitalization of the index. The index has a large concentration in the IT sector at 39%, with technology giant Samsung Electronics (005930) accounting for 27% of the index. Other major sector weights include consumer discretionary (17%), financials (14%), industrials (11%) and materials (9%). Except from the heavy weight in Samsung Electronics, stock concentration is minimal, with Hyundai Motor accounting for 5% of the index and the remaining 101 stocks with individual statistical weights below 4%.

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Fondskonstruktion

This ETF employs synthetic replication to track the underlying index by entering into a funded swap with counterparty Deutsche Bank AG. Investors’ cash is transferred to Deutsche Bank in exchange for the index performance (net of swap fees and other costs), while Deutsche Bank puts collateral in a segregated account pledged to the ETF. As of end-May 2013, the collateral, 119% of the ETF’s net asset value, consists mainly of publicly-listed equities, as well as roughly 9% corporate bonds. The collateral is marked to market on a daily basis and is subject to a margin ranging 100-120% of the exposure. Collateral is held by a third-party custodian; in this case State Street Bank Luxembourg S.A. The return from the swap assumes that all dividends paid by the underlying stocks, net of applicable taxes, are reinvested in the index. This ETF does not pay out dividends. The ETF will not enter into stock lending transactions.

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Gebühren

The ETF levies a total expense ratio (TER) of 0.65%. This is in-line with other Hong Kong and Singapore-listed ETFs tracking the MSCI Korea Index. Other costs potentially borne by the unitholder but not included in the TER include swap fees, bid-ask spreads, transaction costs on the infrequent occasions when the underlying index holdings change, and brokerage fees when buy and sell orders are placed for ETF shares.

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Alternativen

 

This ETF is domiciled in Luxembourg and is listed in Hong Kong, Singapore and various exchanges in Europe. There are a number of ETFs tracking the MSCI Korea Index, including the Lyxor ETF MSCI Korea (AO9, listed in Singapore, France, Germany, Italy and Switzerland, TER 0.65%), Kodex MSCI Korea ETF (A156080, listed in Korea, TER 0.37%), CS ETF (IE) on MSCI Korea (CSKR, listed in the UK, Germany, France, Italy and Switzerland, TER 0.65%), HSBC MSCI Korea ETF (HKOR, listed in the UK and Switzerland, TER 0.60%), iShares MSCI Korea (IKOR, listed in the UK, Netherlands, Germany, Italy and Switzerland, TER 0.74%), iShares MSCI South Korea (IKO, listed in Australia, TER 0.59%) and iShares MSCI South Korea Capped Index Fund (EWY, listed in the US, Mexico and Chile, TER 0.59%). Amongst these ETFs, this db-X ETF and the Lyxor ETF MSCI Korea employ synthetic replication while the others employ physical replication. In terms of AUM, the iShares ETF listed in the US is the largest at US$3.0bn, followed by its Europe version at US$568m, this db X-trackers ETF at US$117m and the Lyxor ETF at US$96m.

Investors seeking Korean equity market exposure may also consider ETFs that track alternative indices, such as the KOSPI 200 Index, which offers similar exposure but includes a higher number of constituent stocks.

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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.