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Analyse/ishares FTSE 250

Wer auf den Index FTSE 250 setzt, baut darauf, dass das Segment der mittelgroßen Unternehmen Grossbritanniens auch weiter dem "großen Bruder" FTSE 100 den Rang ablaufen wird.

Hortense Bioy, CFA 07.03.2014

Rolle im Portfolio

By providing broad exposure to UK mid-cap stocks, iShares FTSE 250 can serve as a tool for asset allocators looking to control their market cap and style exposures. This fund is suitable as a core holding in a UK or European equity allocation given its broad holdings across companies and sectors. The FTSE 250 index is well-diversified from the perspective of individual stocks, with the top 10 holdings accounting for 10-11% of the index’s weighting. As a core building block, it can also be used to complement an existing allocation to UK large cap equities such as the FTSE 100 as there is no overlap between the two indices. The FTSE 250 also provides a different industry and sector exposure to that of the FTSE 100, with financials and industrials making up 55-58% of the index, almost double their representation in the UK’s main benchmark.

iShares FTSE 250 can also act as a tactical tool to overweight UK mid-cap equities within a diversified portfolio. It could be useful for those who want to place a bet on the near-to-medium-term prospects of this asset class as a whole under the belief that they represent good value on a stand-alone basis or as compared to large-cap equities and/or small-cap equities. Investors should however keep in mind that mid-cap shares tend to be more volatile than blue chips.

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Fundamentale Analyse

Midcap shares are often considered an attractive investment because of their greater growth potential and superior risk/reward profile compared to large cap shares. The theory has proven true in the UK where the FTSE 250 has returned 13.1% per annum for the past ten years, far outstripping FTSE 100’s annualised return of 7.8% over the same period. On the flip side, the FTSE 250 has also shown higher volatility as its constituents tend to be smaller, less diversified and less well-capitalised companies. This leaves mid-caps more sensitive to macroeconomic risks. The FTSE 250 has exhibited a standard deviation of 17.1% over the past ten years, compared to 13.5% for the FTSE 100 over the same period. This translates into a higher 10 year-Sharpe ratio of 0.64 for the FTSE 250 versus 0.42 for the FTSE 100.

Midcap equities have had a strong run since 2009, with the FTSE 250 TR trebling in value and hitting an all-time high of 10,526 at the end of 2013. Many of the index’s cyclical industrial and consumer services stocks have seen solid earnings growth on the back of improving global demand and a faster-than-expected UK recovery as of late.

Looking into 2014, the key question is whether the conditions that have rewarded UK mid-sized companies will continue. Recent economic data suggests that Britain is on a sound recovery path and that the government’s austerity policies, aimed at eliminating the budget structural deficit by 2017, don’t seem to have been as damaging as originally thought.

Also, while rising interest rates will undoubtedlyaffect investors’ mood at some point, it seems to be unlikely this year. UK inflation is expected to fall further below the Bank of England's target of 2%,after having dropped to 1.9% in January 2014. And for all the noise surrounding the tapering of quantitative easing in the US, the Fed has assured markets that effective tightening is still a long way off.

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The FTSE 250 Index is a free float market capitalisation weighted index that offers exposure to around 250 mid-cap companies traded on the London Stock Exchange. The index is designed to measure the performance of the mid-cap capital and industry segments of the UK market not covered by the large cap FTSE 100 Index. The FTSE 250 Index represents approximately 10% of total UK market capitalisation. The constituents of the index are determined quarterly. The index’s top sector exposures include financials (33-37%), industrials (20-22%), consumer services (15-17%) and consumer goods (6-8%). The index is very well-balanced from a stock perspective, with the largest components representing between 1% and 1.5% of the index’s value.

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The iShares FTSE 250 uses physical replication to track the performance of the FTSE 250 Gross Total Return Index. As the benchmark holds a fairly large number of components iShares uses statistical sampling to construct the fund. This means that the fund may not hold all the stocks within the index at the same weightings as stipulated bythe index. The fund engages in securities lending. Gross lending revenue generated by parent company BlackRock on behalf of the fund is split 60/40 between the fund and BlackRock, whereby BlackRock covers the costs resulting from the securities lending transactions (the net return to the fund was 0.06% for the year ended December 2013). Although this activity can help to partially offset the TER, it potentially exposes investors to counterparty risk. To protect the fund, iShares takes collateral greater than the loan value. Collateral margins vary from 102.5% to 112%, depending on the assets provided by the borrower as collateral. Data at the end of December 2013 reveals that 24% of the fund’s net assets were lent out on average in the previous 12 months with a maximum percentage lent on any single day of 34%. BlackRock has capped at 50% the amount of assets that an iShares fund is allowed to lent out at any given time. BlackRock is also providing borrower default indemnification, i.e. the company commits to replace the securities that any borrower would fail to return, but it will not cover losses incurred on the reinvestment of cash collateral. As of this writing, the collateral value is equivalent to 111.2% of the loaned securities value. Collateral is made up of European and US large cap equities. Blackrock’s additional efforts to minimise counterparty risk include regular monitoring of counterparties' financial stability, ring-fencing the collateral in a third-party escrow account and marking the collateral’s value to market daily. Cash received as dividends from the underlying stocks is held in the income account of the fund until it is distributed to fund holders up to four times a year. This dividend treatment can potentially create a drag on returns in upward trending markets because dividends are not reinvested into the fund. In practice this cuts both ways. It could also result in outperformance if the benchmark falls.

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The fund has a total expense ratio of 0.40%, which is at the very top end of the range for ETFs offering exposure to the UK mid-cap equity market. Additional costs potentially borne by the ETF holders but not included in the TER include rebalancing costs, and bid-offer spreads and brokerage commissions when buy and sell orders are placed for ETF shares.

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There is no scarcity of alternatives for investors looking for exposure to UK mid-cap equities. Providers including db X-trackers, Lyxor, Source, HSBC, and Amundi offer their own FTSE 250 ETFs at total expense ratios ranging from 0.25% to 0.40%. However, the iShares FTSE 250 remains the most popular and heavily-traded fund tracking the FTSE 250 on the London Stock Exchange as measured by the 3-month average daily volume. It also has the tightest 3-month average spread.

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Über den Autor Hortense Bioy, CFA

Hortense Bioy, CFA  is director of passive fund research in Europe.