Analyse: iShares Barclays Cap Euro GovBd 7-10 (DE) (EUR)

Anleger sollten auch nach dem Frankreich-Downgrade vor allem auf das Durationsrisiko achten.

Lee Davidson 24.01.2012

Rolle im Portfolio

The iShares Barclays Capital Euro Government Bond 7-10 ETF offers investors exposure to the longer-dated segment of the most liquid issuers of the eurozone government bond market. The bulk of the reference index is composed of bonds from Germany and France, notionally making this one of the safer longer-dated sovereign debt ETFs on the market, even after S&P’s decision to strip France off its AAA rating. Despite the perceived near-zero probability of a German or French government default, the ETF's longer-term maturity bias makes it less advantageous than shorter-dated maturities for capital preservation needs. Long-dated sovereign bonds harbor greater duration and interest rate risk than their short-dated counterparts making them less appropriate for capital preservation purposes. Investors who consider Germany and France to be reliable, however, may be able to ignore the maturity risk and capitalise on the higher yield offered for these longer-dated issuances.

Tactically-minded investors can use the ETF to manage interest rate risk exposure within a broader portfolio of fixed income holdings spanning the entire curve. The ETF’s long-dated bias facilitates duration-lengthening tactics in order to combat falling interest rates. We would argue that the tactical use of this ETF in this manner is likely best suited to institutional investors as it involves a good understanding of yield curve dynamics and the extensive monitoring of economic developments and ECB monetary policies. 

Fundamentale Analyse

Following revelations regarding the true extent of the Greek budget deficit in 2009, the financial health of the eurozone's periphery members began to be disputed, and the discussion has continued to be at the forefront of the market dynamics today. In the second half of 2011, the viability of the single currency bloc was called into question prompted by worries that the fiscal contagion originating in Greece had spread to Italian and Spanish government debt. Eurozone governments acted quickly in an attempt to inoculate core eurozone governments from the contagion's spread by increasing the firepower of the EFSF to EUR 1Trn. At the same time, eurozone leaders approved one-off policy measures designed to deal with the Greek debt situation (e.g. a 50% haircut for private sector holders of Greek bonds). At the EU Summit in December 2011, eurozone leaders took steps toward deeper fiscal integration through an inter-governmental "fiscal pact" outlining strict budgetary formulation and supervision rules, as well as automatic sanctions for countries violating acceptable deficit levels.

Despite the efforts of eurozone leaders, worries about the viability of the single currency bloc persist and have vaulted sovereign risk back to pre-euro era levels of importance in terms of shaping the pricing dynamics of the eurozone government bond market. Today, government debt from the periphery carries a substantial risk premium versus the German Bund and other top-rated issuers. The driving force behind this divergence in risk perceptions, it could be argued, stems from disparity in economic performance between the core and the periphery. However, even if economic indicators across the eurozone began to converge and generally improve, it is safe to assume that the crisis has altered investors' risk perceptions regarding core and periphery government paper for the long-term.

Against this backdrop, the European Central Bank (ECB) has been active in promoting financial stability by providing liquidity with unprecedented levels of favourability to the eurozone banks. Collateral requirements have been relaxed, reserve requirements loosened, loan terms lengthened, and interest rates lowered all with the intent to 'grease' the monetary engine. The effectiveness of the ECB policies divides opinion, with some arguing that these policies have been enacted to prepare the financial system for partial sovereign defaults. On the other hand, other observers hope these policies are a type of 'back-door bazooka' aimed at indirectly funding the periphery until eurozone structural reforms can be agreed to and enacted.

Looking ahead, the outlook for the eurozone sovereign debt market remains in a state of tremendous fluidity, as the January round of ratings downgrades by S&P - including the loss of AAA by France, Austria and the EFSF - showed. The mild tightening cycle of mid-2011 has been fully reversed, with ECB short-term and 3y interest rates down to 1.00% as we write. The downward trend in the current inflation rate, and more importantly, the lowering of medium-term inflation expectations towards the ECB’s price stability target of around 2.0%, bodes well for a protracted period of ultralow interest rates, with further cuts appearing a distinct possibility.

Indexkonstruktion

The Barclays Capital Euro Government Bond 10 Year Term Index measures the performance of 10 year government bonds issued by the major investment-grade eurozone member states (e.g. Germany, France, Italy, Spain and the Netherlands). Term indices are a Barclays Capital in-house indexing methodology which uses standard market capitalisation weighting on a bond universe made up of issues near their original maturity term rather than on all bonds within a specific maturity range. The index is calculated on a daily basis using mid-market prices provided by Barclays Capital market makers towards the close of London trading. The index is reviewed and rebalanced on the last calendar day of each month. The maximum weight of an individual bond is capped at 30% at the time of rebalance. To be eligible for inclusion into the index, bonds must have a minimum outstanding of EUR 2bn and a minimum remaining life of seven years. Additionally, the index will exclude any bonds with S&P and Moody's credit ratings below Baa3 or BBB- respectively. Income generated by the index constituents are reinvested monthly at the time of rebalancing at 1M Euro LIBOR -15 bps set at the end of the month for the next month. At the time of this writing, the index contains 12 constituents with the overwhelming exposure coming from German sovereign debt (around 74%), followed by France (around 24%), and Spain (around 2%).

Fondskonstruktion

iShares uses physical replication to track the performance of the Barclays Euro Government Bond 10 Year Term Index. The restricted bond universe which Barclays Capital uses to construct its term indices allows iShares to fully replicate the index constituents in its fund, although statistical weightings might differ slightly and this could impact on the fund’s tracking performance at the margins. Dividend distribution is done semi-annually, with historical data showing an April-October payment pattern. This ETF was launched in December 2006 and is domiciled in Ireland. As of mid-January 2011, the tracking difference since the fund’s inception, measured in terms of annualised total returns after fees (note – the annual total expense ratio is 0.20%), stood at 0.22%. iShares may engage in securities lending in order to optimise the ETF’s tracking performance. BlackRock acts as investment manager on behalf of iShares. Lending operations are hedged by taking UCITS-approved collateral greater than the loan value and by revaluing loans and collateral on a daily basis. The collateral is held in a ringfenced account by a third party custodian. The degree of overcollateralisation is a function of the assets provided as collateral, but typically ranges from 102.5% to 112%. Lending revenue is split 60/40 between the ETF and BlackRock, respectively.

Gebühren

iShares charges a total expense ratio (TER) for this ETF is 0.20%. This TER is at the high end of the annual cost range (e.g. 0.12-0.20%) for ETFs from the main European providers tracking indices biased to the 7-10 year segment of the Eurozone government bond market.

Alternativen

In the longer-dated maturity segment of eurozone government bonds, the iShares ETF is far and away the most popular ETF, in terms of total assets under management, and is also the most actively traded. The added liquidity associated with the iShares ETF may be seen as compensation to the investor for the slightly higher TER it charges to physically replicate the reference index.

The swap-based Lyxor ETF EuroMTS 7-10y is a distant second to iShares in terms of liquidity. Lyxor charges a 0.165% TER and tracks an index that includes all eurozone issuers regardless of rating. Staying with the synthetics, db x-trackers iBoxx EUR Sovereign 7-10y ETF tracks an index that only considers investment grade sovereign debt and charges a TER equal to 0.15%.

Other ETF providers (e.g. Amundi, ETFlab) remain behind all their peers in terms of AUM and on-exchange liquidity of their offerings for this particular maturity segment.

Über den Autor

Lee Davidson  is an ETF analyst with Morningstar Europe.