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Update: Source MSCI Europe UCITS ETF

Der MSCI Europe ist einer der wichtigsten Standardwerte-Indizes und enthält Aktien aus 15 entwickelten europäischen Ländern. Großbritannien macht rund ein Drittel des Indexgewichts aus. Branchenseitig stehen Financials, Healthcare und Industrie im Vordergrund.

Dimitar Boyadzhiev 26.08.2016

Rolle im Portfolio

The fund offers investors low-cost access to large- and mid-cap companies from 15 European countries. As such, it can be used as a core holding within a diversified portfolio or as a tactical tool to express a view on the region. The largest country exposure is to the United Kingdom, which represents about a third of the fund's value, followed by Germany and Switzerland. The eurozone makes up about half of the portfolio.

With over 90% of the portfolio in large caps, the fund is overweight in large caps and underweight in mid-caps compared with the average peer in the Europe Large-Cap Blend Equity Morningstar Category, which includes both active and passive offerings. This means that the fund may lag category peers at times of strong economic expansion.

The MSCI Europe Index is well-balanced in terms of country and sector exposure, and we believe that the fund has the potential to deliver above-average returns against the broader set of investment vehicles in the category over the long term. In risk-adjusted terms, this exchange-traded fund's returns have ranked in the category's first quartile over the past three and five trailing years, and other MSCI Europe ETFs with a longer track record also rank in the first quartile over 10-year period.

With an expense ratio of 0.20%, the fund is competitively priced against the category and it is among the cheapest ETFs tracking MSCI Europe. As measured by its tracking difference (fund return less index return), this optimised fund has shown below-average performance over the past three years in comparison with ETF peers.

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Fundamentale Analyse

Investors in European equities have a lot to thank the European Central Bank for since the 2011-12 sovereign debt crisis that threatened to break up the Monetary Union. European Central Bank president Mario Draghi's famous pledge in 2012 to "do whatever it takes" to preserve the euro, followed by the bank's massive quantitative-easing programme in 2015, has helped restore investor confidence in the region and support equity valuations. The central bank has since extended its bond purchases into 2017 and has driven its key interest rate down to zero and the deposit rate to negative terrain in order to encourage bank lending to economic agents. Monetary policy should only be expected to retain an ultra-loose stance for the foreseeable future, with the European Central Bank ready to ramp up the stimulus to address downside risks to the outlook.

The recovery in Europe from the 2008 financial crisis has been slower than in other parts of the world, most notably the United States. And this has been amply reflected in the performance of the stock market, with the MSCI Europe lagging the S&P 500 by 7.2% and 7.6% (in the US dollar and euro, respectively) in the period spanning September 2008 through to end July 2016.

That said, it would be a mistake to view Europe as a uniform market given the differences in the region's economies. For example, compared with the eurozone, the UK experienced a very fast recovery, although this is now compromised by the Brexit vote. Meanwhile, the outlook in the eurozone economy is slowly improving thanks partly to the reforms adopted by several countries, including Spain, Italy, and France. Results remain uneven, though, and further structural reform is still essential.

Just as it would be a mistake to view all European countries as identical to each other, it would be a mistake to believe that all blue chips are the same in all parts of the continent and driven by the same economic fundamentals. For example, UK and Spanish mega-caps are dominated by global banking groups that still derive a significant part of revenues from their domestic markets. In contrast, Swiss mega-caps--healthcare and consumer goods heavyweights, for example--are globally exposed companies with relatively less Swiss and EU-derived revenues. Also, some of UK's largest companies are resources companies whose performance is often directly linked to international commodity prices. Prices in the commodity market have been largely driven in recent years by demand from emerging markets, especially China.

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The MSCI Europe Index includes approximately 85% of the equity market capitalisation of 15 countries across developed Europe. As we write, the index is composed of approximately 450 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. Financial services and consumer defensive are the index's biggest sectors, with a 15%-20% weighting each, followed by healthcare (13%-15%) and industrials (10%-12%). The eurozone accounts for approximately half of the index value, followed by the UK (30%-35%), Switzerland (13%-15%), and the Nordics (8%-10%). Within the eurozone exposure, Germany and France have the biggest weightings, accounting for 13% to 15% of the index value each.

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The fund uses synthetic replication to capture the performance of the MSCI Europe Net Return Index, which includes dividends reinvested net of tax. To achieve this performance, the fund enters into unfunded swap agreements with multiple counterparties, including Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley, JPMorgan, Nomura, and four others (although not all banks at once). Through the swap agreements, each counterparty delivers a basket of securities, which becomes property of the fund, and commits to pay the index performance (net of a swap spread) in exchange for the performance of the basket they delivered. Source caps overall exposure to all swap counterparties at 4.5% of the fund's net asset value. Swaps are also reset when there is a creation or redemption in the fund, when exposure to a counterparty exceeds either 0.20% of the fund's NAV or EUR 100,000, whichever is greater. Additionally, swaps are reset on a monthly basis, irrespective of value. Resetting a swap to zero eliminates (temporarily) exposure to the counterparty that provided the swap. As of this writing, the holdings, which consist predominantly of European large-cap equities and can change every day, represent 100.44% of the fund's NAV. The average mark-to-market value of the swap is negative 0.1% of the fund's NAV. The fund does not engage in any securities-lending activity.

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With a total expense ratio of 0.20%, this is one of the cheapest tracking the MSCI Europe Index. Index funds should provide the returns of their benchmark, less fees. However, during the past three years, this fund had delivered more than that, as its tracking difference (fund return less index return) has ranged from negative 0.05% to positive 0.01%. It has underperformed its benchmark by 0.02% in annualised terms. Investors should also consider trading costs, including bid-ask spreads and brokerage fees, when buying and selling the ETF.

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There is no shortage of ETFs offering exposure to European equities, though not all track the same benchmark. The fees of market capitalisation-weighted Europe ETFs range from 0.12% to 0.51% and the cheapest one is the Vanguard FTSE Developed Europe ETF.

Among those tracking the MSCI Europe Index, the largest ones, in terms of assets under management, are db x-trackers MSCI Europe (DR) 1C (total expense ratio: 0.30%) and iShares MSCI Europe (Acc) (0.33%).

Investors are also offered a number of ETFs tracking the Stoxx Europe 600 Index at total expense ratios ranging between 0.18% and 0.30%. With a fixed number of 600 constituents, the Stoxx Europe 600 has a similar makeup to the MSCI Europe Index, except that it has a slightly higher tilt toward mid-cap companies. The largest ETFs in this group are iShares Stoxx Europe 600 (DE) (0.20%) and db x-trackers Stoxx Eurp600 (DR) 1C (0.20%).

Finally, there is 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 Ossiam iStoxx EurMiniVar (0.65%), Source Goldman Sachs Equity Factor Europe (0.55%), and iShares MSCI Europe Minimum Volatility (0.25%). 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. 

Über den Autor

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