Update: iShares SMIM

Dieser ETF erhält nur das Rating "Neutral" - uns fehlt die Überzeugung, dass dieses Indexprodukt langfristig das Zeug hat, Nebenwertefonds mit Anlagefokus Schweiz Risiko-adjustiert zu übertreffen. 

Hortense Bioy, CFA 16.06.2017

 

Rolle im Portfolio

We lack confidence that the iShares SMIM will beat its Switzerland Small/Mid Cap equity Morningstar Category peers in the long run on a risk-adjusted basis.

The ETF provides exposure to the 30 largest mid-cap stocks on the Swiss equity market that are not included in the blue-chip SMI Index, i.e. companies that ranked 20-50 on the Swiss Six Exchange.

The SMI Mid is fairly diversified from the perspective of individual stocks, with the top 10 holdings accounting for just over 50% of the index’s weighting. Following a market-cap weighting scheme, the SMIM has a bias towards larger midcaps and its allocation to small caps is virtually null. This contrasts with the average fund in the category, which, as of this writing, had 17% exposure to small- and micro-caps.

Performance-wise, the fund has failed to impress, lagging the average active and passive offering in the category on a risk-adjusted basis over three, five, and 10 years. Meanwhile, the fund has lagged its underlying benchmark by an amount that is above its ongoing charge of 0.45%. While 0.45% is considerably less than the median fee in the category, it is higher than what other, albeit smaller, passive options charge. For example, UBS offers a SMIM ETF for an ongoing charge of 0.28%. As the world’s largest exchange-traded fund provider, iShares enjoys vast economies of scale but is selective in the way it shares them with investors.

All factors considered, despite the good quality of the portfolio—three fourths of the holdings currently carry wide or narrow Morningstar Economic Moat Ratings, indicating that they enjoy durable competitive advantages—and its degree of diversification, we lack confidence that the iShares SMIM (CH) ETF will beat the average fund in the category over the long term. On this basis, we have awarded it a Morningstar Analyst Rating of Neutral. Besides, there are cheaper alternatives available.

Fundamentale Analyse

Mid-cap stocks are often considered an attractive investment because of their greater growth potential and superior risk/reward profile compared with large-cap stocks in the medium to long run. This theory has proved true in Switzerland, with the SMIM Total Return (TR) Index outperforming the SMI TR Index by 1.5% on an annualised basis during the trailing 10 years and 4.9% during the trailing five years. The SMIM has also exhibited higher volatility for 10 years (17.9% versus 15%), although not for five years (11.8% versus 11.9%). Mid-caps tend to be smaller, less diversified, and less well-capitalised companies, leaving them 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.

Thanks to their high value-added nature, these companies weathered the global financial and economic crisis better than many others. They also showed resilience to the strong franc, which, driven by its safe-haven status, appreciated considerably after the crisis.

In an effort to contain franc appreciation, support growth, and prevent sustained deflation, the Swiss National Bank introduced a CHF/EUR 1.20 foreign exchange peg target in September 2011. In January 2015, the SNB took many by surprise by dropping the peg, and, to discourage Swiss franc appreciation, the bank also cut interest rates to negative 0.75%. This negative rate setup remains in place as of this writing.

The Swiss franc, nevertheless, is still considered too strong and continues to weigh on exporters, especially those that generate most of their sales outside Switzerland but manufacture domestically.

Another source of concerns for Swiss companies remains the slowdown in emerging markets, particularly China. Swiss companies have increased their exports to China and are now more dependent than ever on its economic growth.

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, that is, companies that ranked 20-50 on the Swiss Six Exchange. As in the case of the SMI, the SMIM Index is free-float market-cap-weighted, and the components are selected according to market cap and turnover. This market-cap-weighting approach gives the fund a large-cap bias relative to rival offerings in the category. Industrials and healthcare are the most heavily weighted sectors, representing 17%-22% of the index's weighting each, followed by financials (15%-19%) and materials (13%-16%). Sika, Partners Group Holdings, and Lonza are among the top constituents, with a 6%-9% weighting each.

Fondskonstruktion

The fund uses full physical replication to track the performance of the SMIM Total Return Index. Dividends (including withholding receivables) are reinvested in both the SMIM constituents and index futures depending on the amount and time frame until the next distribution date. 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. IShares holds a dominant position in the European ETF marketplace by virtue of its comprehensive offering. The fund management process is robust. We value the wealth of experience of the people behind it and the extensive internal network supporting the operation. Having said that, we take the view that the vast economies of scale generated by the BlackRock group could be better shared out with investors in the shape of lower ongoing charges. It is worth noting that this Switzerland-domiciled fund is not compliant with UCITS and therefore is only authorised for commercial distribution in Switzerland and Liechtenstein.

Gebühren

The fund levies an ongoing charge of 0.45%, which is at the top end of the range for ETFs tracking Swiss equities. Its tracking difference (fund return less index return) during the past few years suggests that the total holding cost is higher than the ongoing charge. On top of holding costs, ETF investors will typically be charged trading costs, including bid-offer spreads and brokerage commissions, when buy and sell orders are placed for ETF shares.

Alternativen

Investors seeking a cheaper and better-performing alternative to this fund can turn to UBS SMIM ETF, which levies an ongoing charge of 0.28%.

Credit Suisse and Swisscanto offer index funds that track the broader SPI Extra Index. CSIF (CH) Swtzl S & M Cap Index and SWC (CH) Index EF S&M Caps have about 190 holdings, including small and mid-caps. The top 10 holdings account for 34% of the funds’ value.

Finally, those looking for broader and more representative market exposure could consider ETFs tracking the Swiss Performance Index, which is composed of large, mid-, and small caps. IShares Core SPI (CH) charges an ongoing charge of 0.10%, UBS ETF SPI (CH) levies 0.17% and Comstage SPI charges 0.40%.

Über den Autor Hortense Bioy, CFA

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