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Update: UBS ETF - MSCI World UCITS ETF

Dieser ETF bildet den MSCI World physisch ab. Er ist attraktiv gepreist, hatte jedoch mit Blick auf das Tracking in den vergangenen drei Jahre Nachteile gegenüber Konkurrenten.

Dimitar Boyadzhiev 14.07.2016

Rolle im Portfolio

This exchange-traded fund offers exposure to a broad range of developed equity markets across the world.

The fund aims to replicate the MSCI World Index, which, with more than 1,600 constituents, covers approximately 85% of the equity market capitalisation of 23 developed-markets countries.

While the fund overweights the United States--which represents 55%-60% of the portfolio’s value--and has virtually zero exposure to emerging markets, it is relatively well-representative of the opportunity set available to investors. Its composition in terms of market cap, sector, and style is in line with that of its average active and passive peers in the global large-blend equity Morningstar Category.

With that in mind, we believe the fund has the potential to consistently outperform over the long term. The ETF has ranked at the top of the first quartile of the category in risk-adjusted return terms during the trailing three- and five-year periods, while other MSCI World ETFs with longer track records have enjoyed similar rankings during a 10-year period.

This is the only MSCI World ETF that uses full replication, and it could be a suitable option for investors who wish to avoid the risk of high tracking error at the expense of potentially higher frictional costs. As measured by its tracking difference (fund return less index return), the fund has shown below-average performance during the past three years in comparison with its ETF peers. With an expense ratio of 0.30%, the ETF is competitively priced against the category but average against directly comparable rivals.

All factors considered, this fund stands as an above-average offering within its category. It is also an accurate tracker. But there are cheaper and better-performing directly comparable alternatives. 

Fundamentale Analyse

The general environment for global developed-markets equities has become more volatile in 2016. Forecasts for global growth have been revised slightly down to account for the build-up of downside risks, such as low commodity prices and challenging conditions in key markets, particularly China. Against this backdrop, the performance of developed economies remains uneven across major areas, while monetary policy remains the key driver of sentiment.

The US is the most important contributor to the performance of the MSCI World Index. After a long period of sustained growth, equity valuations may look somewhat stretched. Further upside has become increasingly dependent on a revival of corporate earnings. During the last quarter of 2015, US earnings per share shrank 6.8% relative to a year earlier, while the sectors suffering a decline in profits were six out of 10--well extended beyond energy and materials. On the upside, the US economy looks fairly resilient, with a solid job market. More importantly, after hiking interest rates in December 2015, the US Federal Reserve has toned down tightening expectations. This may provide ongoing support to the US equity market.

Eurozone equities had a rough start of 2016, but the combination of cheap oil, positive credit growth, and rising consumer demand should keep the region’s economy inching up. However, overall, the eurozone remains one of the world developed economies growth laggards. In March 2016, the ECB upped its ultra-easy monetary policy stance, with the announcement of direct interventions in the corporate bond market, as well as an expansion of liquidity provision operations at very favourable terms. This has potential to directly lower companies’ funding costs. Investors should be aware that, compared with US and developed Asian peers, eurozone companies tend to have higher revenue exposures in growth-sensitive sectors such as resources and financial services. This can result in higher relative underperformance in falling markets.

Japan, the world’s third-largest economy, has struggled for the best part of the past three decades against persistent deflationary pressures and a spiralling public debt burden. In late 2012, Prime Minister Shinzo Abe announced the launch of a package of fiscal stimulus, monetary easing, and structural reforms designed to kick-start the country’s stagnant economy. Global markets responded favourably; however, GDP growth remains meagre and deflationary pressures persist, which induced the Japanese central bank to introduce negative rates in early 2016. Further steps taken by the government include improving the flexibility and the productivity of the labour force, which is hampered by long-term job security, seniority-based wages, limited female participation in the workforce, and company-based labour unions.  

Indexkonstruktion

The MSCI World Total Net Return Index includes approximately 85% of the equity market capitalisation of 23 developed-markets countries. As of this writing, the index comprises approximately 1,640 stocks. Components must meet minimum criteria for liquidity, as well as foreign ownership restrictions. The securities are weighted by free-float market capitalisation. The index is reviewed and rebalanced quarterly. The US accounts for approximately 55%-60% the index value, followed by Japan (8%-10%), the United Kingdom (6%-8%), and France (3%-5%). Financial services is the index’s largest sector, with an 18%-20% weighting, followed by information technology (13%-15%) and consumer discretionary (12%-14%). Portfolio concentration is very limited, with the top 10 holdings accounting for 9%-11% of the total index value. Top securities include Apple with a 1%-2% weighting, followed by Microsoft and Exxon Mobil at approximately 1%.

Fondskonstruktion

This fund uses full physical replication to track the performance of the MSCI World Total Net Return Index. It achieves this by holding all index constituents in their prescribed weightings. The ETF engages in securities lending, which serves to generate additional revenue and partially offset the TER. The net return to the fund was 0.03% for the 12 months to 17 May 2016. During this period, the maximum percentage lent for this fund was 9.82%, while the average on-loan level was 7.05%. The gross lending revenue generated is split 60/40 between the ETF and State Street Bank GmbH, which acts as lending agent, respectively. To protect the fund from the counterparty risk that results from this practice, borrowers are requested to post collateral of between 105% and 115% of loan value, depending on the assets provided. Acceptable collateral includes securities issued by G-10 countries (except Japan and Italy) and Austria, Denmark, Finland, Norway, and New Zealand, and world equities. State Street also provides borrower default indemnification in the event that a borrower is unable to return the securities. The fund distributes dividends semiannually, in February and August.

Gebühren

With a total expense ratio of 0.30%, the fund sits in the middle of the range for ETFs tracking the MSCI World Index. Index funds should provide the returns of their benchmark, less fees. However, during the past three years, this fund’s tracking difference (fund return less index return) has delivered more than that. The fund has lagged its benchmark by an amount that is less than the TER. As the fund is domiciled in Luxembourg, it benefits marginally from lower dividend withholding taxes versus the index, but much less compared with its Irish-domiciled counterparts. It also enjoys additional return from securities-lending activity. The fund’s annualised tracking error for the same period has been 0.06%. Tracking error is a measure of how consistently a fund tracks its benchmark index. The closer the tracking error is to zero, the better or more efficient the fund is. Investors should also consider trading costs, including bid-ask spreads and brokerage fees, when buying and selling the ETF.

Alternativen

There are plenty of ETFs providing investors with access to global equities.

IShares Core MSCI World ETF (TER: 0.20%) is currently the best direct alternative, followed by the synthetically replicated Amundi ETF MSCI World (TER: 0.38%) in terms of delivering the best total return against the MSCI World Index. Other direct alternatives include the physical-optimised db x-trackers MSCI World (DR) 1C (TER: 0.19%).

Also available are funds offering even broader exposure by combining developed and emerging economies. The Vanguard FTSE All-World ETF (TER: 0.25%) is the cheapest (in terms of fees) and provides the broadest exposure in this category. As such, it may represent a better option than MSCI ACWI ETFs, all of which we believe are currently expensive. The FTSE All-World Index offers access to approximately 90%-95% of the world’s investable market capitalisation, against 85% for the MSCI ACWI. Emerging-markets countries account for approximately 8%-10% of the exposure.

There is a growing number of strategic beta products, which seek to either improve the performance or alter the risk of traditional market cap-weighted index products. Popular ETFs, in AUM terms, include iShares STOXX Global Select Dividend (DE) ETF (TER: 0.46%), iShares MSCI World Minimum Volatility (TER: 0.30%) and Lyxor SG Global Quality Income (TER: 0.45%). Other strategies include value, growth, quality and size. It is important to understand that all of these strategies can experience long periods of underperformance relative to the broad market. 

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Über den Autor

Dimitar Boyadzhiev  Dimitar Boyadzhiev ist Fund Analyst, European Passive Fund Research