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Analyse/iShares SMIM

Viele Menschen essen Lindt-Schokolade, fahren in Schindlers Liften und tragen Swatch-Uhren. Diese Unternehmen finden sich im Schweizer Nebenwerte-Index SMIM wieder,  

Hortense Bioy, CFA 21.03.2014

Rolle im Portfolio

By providing broad exposure to Swiss mid-cap stocks, the iShares SMIM 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 Swiss or European equity allocation given its broad holdings across various companies and sectors. The SMIM index is fairly diversified from the perspective of individual stocks, with the top 10 holdings accounting for 52-55% of the index’s weighting. However mid-cap shares tend to be more volatile than blue chips. For instance, the SMIM has exhibited an annualised standard deviation of 20% over the past five years, compared to 15% for the Swiss main benchmark SMI over the same period. This fund can also act as a tactical tool to overweight Swiss 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 a good value on a stand-alone basis or as compared to large-cap equities. Non-Swiss investors can also use this fund to gain exposure to the Swiss franc, one of the world’s most stable and strongest currencies. However these investors should be mindful that a strengthening franc will enhance the return of this fund as denominated in their home currencies, but a weakening franc will weigh on its performance as measured in their home currency.

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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 in the medium to long run. This theory has however proven moderately true over the medium term in Switzerland where the SMIM Total Return (TR) has outperformed the SMI TR by 1 percentage point (pp) on an annualised basis over the last five years, but underperformed by 4.6 pp over the last three years. As expected, the SMIM has also exhibited higher volatility (14.4% vs. 13.1% over 5y and 12.5% vs. 11.1% over 3y) as its constituents tend to be smaller, less diversified and less well-capitalised companies. This leaves mid-caps more sensitive to macroeconomic risks. Notwithstanding, we think that this fund contains strong, solid brand names including highly specialised companies like Schindler and Kuhne & Nagel, which are world leaders in their respective fields.

 

Buoyant worldwide demand for Swiss goods supported Switzerland’s economy after the financial crisis, until the appreciation of the Swiss franc--driven by its safe haven status--became a problem, threatening to thwart growth and sink the country into sustained deflation. The persistent strength of the franc prompted the Swiss National Bank (SNB) to set the minimum exchange rate to the euro at 1.20 in September 2011. This shift, effectively a “peg” to the euro, has since changed the role of Swiss franc-denominated assets in investors’ portfolios. That is to say that they’ve somewhat lost their safe haven appeal. 

As of this writing, the cap remains in place and will continue to be enforced by the SNB with “utmost determination” for as long as necessary. Despite bouts of weakness since the cap was introduced, the franc has remained high versus both the dollar and euro. However, Swiss exporters have proven relatively resilient to it, as evidenced by the strong performance of the SMI index ever since –e.g. the SMI was among Europe’s best performing benchmarks in 2013, with a gain of 23.9%.

Going forward, Swiss large exporters will continue to benefit from the recovering international demand, especially that coming from Europe –a major trading partner. In Q2-2013, the Eurozone emerged from its longest-ever recession, which saw austerity measures and high unemployment restrict consumer spending. To offset slowing European consumption, Swiss companies have increased their exports to China and are now more dependent than ever on its economic growth. China is currently the fourth biggest importer of Swiss products behind Germany, the US and Italy. In four or five years, should the current trend continue, China is expected to become the second largest buyer of Swiss products after Germany. But China is slowing down too. Indeed, the world’s No 2 economy continues to post robust growth rates of between 7% and 8%, but these are lower than what the world had become accustomed to.

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Indexkonstruktion

The SMIM index (SMI Mid) comprises the 30 largest mid-cap stocks on the Swiss equity market that are not included in the blue chip SMI index. As in the case of the SMI, it is free-float-capital weighted and the components are selected according to market capitalisation and turnover. Industrials and financials are the most heavily weighted sectors representing about between 24% and 28% of the index's weighting each, followed by consumer goods (18-21%) and healthcare (10-13%). Kuhne & Nagel, Sika and Schindler are among the top constituents.

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Fondskonstruktion

The fund uses full physical replication to track the performance of the SMIM index on a total return basis. The fund buys all the securities within the index and can invest up to 5% of its assets in SMIM futures. The fund may engage in securities lending but at the time of this writing no information related to it was made available on the company website. While securities lending can help generate additional revenue, it also introduces counterparty risk. To protect the fund, the borrowers are requested to post collateral. Dividends (including withholding receivables) are reinvested in both the SMIM constituents and SMIM futures depending on the amount and timeframe until the next distribution date. It is worth noting that this Swiss-domiciled fund is not compliant with UCITS and therefore is only authorised for commercial distribution in Switzerland and Liechtenstein.

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Gebühren

The fund levies a 0.49% total expense ratio, which is at the top end of the range for ETFs tracking the SMIM. Additional costs potentially borne by the fund shareholder but not included in the TER include rebalancing costs, and bid-ask spreads and brokerage fees when buy and sell orders are placed for ETF shares.

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Alternativen

Investors seeking a cheaper alternative (speaking strictly in terms of TER) to this fund can turn to the UBS-IS - SMIM ETF, which has a TER of 0.40%. But this lower fee may potentially come at the expense of lower liquidity. The iShares SMIM (CH) is the oldest and largest ETF offering exposure to the Swiss midcap equity market. Alternatively, those interested in the large-cap shares segment of the Swiss market could consider the iShares SLI (CH), which comprises the 30 largest and most liquid stocks on the Swiss stock exchange. It has a capping mechanism, whereby the index weighting of the four largest constituents is limited to 9% and the weighting of all other components to 4.5%. This capping mechanism provides stock and sector diversification. The iShares SLI (CH) has a TER of 0.40%. UBS and db X-trackers also offer ETFs on the SLI for a TER of 0.35%.

Über den Autor Hortense Bioy, CFA

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