Analyse: UBS-ETF FTSE 100 A

Kriselnde Wirtschaft, sicherer Hafen? In der Eurokrise erweist sich der britische Aktienmarkt als äußerst robust.

Hortense Bioy, CFA 12.07.2012
Rolle im Portfolio

The UBS-ETF FTSE 100 A provides broad exposure to large capitalisation UK equities and can be used as a core holding. Investing in this well-diversified fund could appeal to those looking to build a UK-centric portfolio. However, it is important for investors to examine the fund’s holdings. With a 20% weighting, the oil & gas sector has recently supplanted the financial sector as the top sector represented in the fund. Overall, a third of this ETF is invested in shares of resources firms including energy and mining companies such as Royal Dutch Shell and Rio Tinto, whose share price is primarily driven by international commodity prices.

Also, it should be noted that the FTSE 100 is closely correlated to international equity indices as many of the index’s constituents are truly global players (more than 70% of the revenues of FTSE 100 companies come from outside the UK, while most of the top ten FTSE 100 companies report their results in US dollars rather than sterling). Over the past five years, the FTSE 100 has shown a 90% correlation to both the EURO STOXX 50 and the MSCI World.

Fundamentale Analyse

The UK equity market, as measured by the FTSE 100 Total Return index, shed 2.8% y/y to the end of June in a context of poor economic performance and concerns about the effect of the eurozone crisis weighing on the British economy. 

The UK slipped into technical recession in the first quarter of 2012, pushing the country into its second recession since the start of the financial crisis. Meanwhile, fears of a longer slump have been rising as companies hold back investment and exports suffer from growth slowdown in the eurozone. The consensus is that UK GDP growth will be fairly meagre this year, with domestic demand set to be undermined on the mix of public spending cuts and unfavourable labour market conditions as public spending cuts bite and the labour market continues to struggle. 

Against this backdrop, the Bank of England launched a third round of quantitative easing worth £50bn in July, taking the total amount of funding so far to £375bn in an attempt to stimulate demand. The BoE has kept its key rates at a record low of 0.50% since March 2009, while expectations of a policy normalisation (i.e. a cycle of interest rates increases) are continuously being put back.

Looking at current valuations, UK stocks are priced below historical levels. As of this writing, the FTSE 100 trades at about 10 times forward earnings, a multiple that is well below its long-term average PE ratio of 13-15. Based on this and other metrics, such as prospective dividend yields relative to gilts, some investors see current valuations as attractive.  

Aside from valuation considerations, the UK financial sector continues to be an area of concern as the Eurozone sovereign debt crisis still looks far from being resolved. UK banks like HSBC, Barclays and RBS remain vulnerable in the face of evolving challenges, such as fragile funding conditions, wider credit spreads, increased regulatory burdens and generally difficult operating conditions.

UK mining and other commodities-linked stocks also remain under pressure as a deeper-than-anticipated slowdown in China could result in significantly lower commodity demand and prices.


The FTSE 100 Index is a free float market capitalisation weighted index that offers exposure to the 100 largest UK stocks. It represents about 85% of the market capitalisation of the London Stock Exchange and 7.8% of the world’s equity market capitalisation (based on the FTSE All-World Index as of 28 May 2010). The constituents of the index are determined quarterly. The index consists of 100 companies, for a total of 102 listings as two share classes are included for Royal Dutch Shell and Schroeders. The index’s top sector exposures include oil & gas (19-21%), financials (17-19%), consumer goods (15-16%) and basic materials (11-12%). The index looks fairly well-balanced from a stock perspective. HSBC is the largest component of the FTSE 100 with a 7% weighting. The second and third largest stocks represented are BP (6%) and Vodafone (5.7%).


The UBS ETF FTSE 100 A is a UCITS-compliant fund that uses full replication to track the performance of the FTSE 100 index on a total return basis (dividends are reinvested). The fund invests in all the constituents of the index with the same weightings stipulated by the index. This fund may engage in securities lending, which helps to generate additional revenue. An undisclosed portion of the securities lending revenues after costs generated by lending agent State Street on behalf of the fund is passed on to the fund. Although this activity can serve to enhance returns, it also introduces counterparty risk. To protect the fund, UBS takes collateral to which haircuts are applied (2% for US equities and 5% for other country equities). Counterparty risk is fully monitored on a daily basis by the lending agent. To further mitigate counterparty risk, State Street also provides investors with borrower default indemnification in the event a borrower is unable to return the securities on loan. Dividends received from the underlying stocks are reinvested in the fund until they are distributed twice a year. This dividend treatment helps to reduce cash drag. 


The fund has a total expense ratio (TER) of 0.50%, which is at the high end of the range for ETFs giving exposure to the UK large-cap equity market.


There is no scarcity of alternatives for investors looking for exposure to UK large cap equities. Providers including db x-trackers, Lyxor, Source, HSBC, ComStage, Amundi, Credit Suisse and UBS offer their own FTSE 100 ETFs or MSCI UK ETFs at total expense ratios ranging from 0.25% to 0.50%. However iShares FTSE 100, which is the oldest ETF in Europe, remains the most popular and heavily-traded fund tracking the FTSE 100 on the London Stock Exchange. Another alternative includes Ossiam’s FTSE 100 minimum variance ETF, which offers exposure to a lower volatility version of the FTSE 100. This physically-replicated fund carries a TER of 0.45%. Investors seeking exposure to medium-sized UK stocks can take a look at ETFs tracking the FTSE 250 index, which is comprised of the 101st to 350th largest UK companies. Although the FTSE 250 has higher concentrations in the financials (31%), industrials (23%) and consumer services (17%) sectors than the FTSE 100, it is a more diversified index from the perspective of individual names, with its top 10 holdings representing only 10% of the index’s value. The largest and most heavily-traded ETF tracking the FTSE 250 is offered by iShares. It has a TER of 0.40%. Amundi recently launched a cheaper alternative (speaking strictly in terms of TER) at 0.25%. Those looking for exposure to the broad UK market in one fund can consider ETFs that track the well-known FTSE All-Share index. It represents at least 98% of the UK market capitalisation and is the aggregation of FTSE 100, FTSE 250 and FTSE Small Cap Indices. The largest fund db x-trackers FTSE All-Share has a TER of 0.40%. 

Über den Autor

Hortense Bioy, CFA

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