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Analyse: ComStage ETF EURO STOXX 50 NR

Der ComStage ETF EURO STOXX 50 konzentriert sich auf Euroland-Standardwerte. Den größten Anteil am Index machen deutsche und französische Aktien aus.

Hortense Bioy, CFA 20.07.2012
Rolle im Portfolio

The ComStage ETF EURO STOXX 50 NR is a suitable choice as a core portfolio building block. It offers broad exposure to many of the largest companies in the European Economic and Monetary Union (EMU). The ETF can also be used as a tactical tool to overweight a portfolio's exposure to the currency bloc's equities, or it can be shorted to bet against the performance of the underlying equities or to hedge existing positions.

The immense size of the companies in the index (their average market capitalisation is greater than EUR 30 billion) means that even with only 50 components, it captures nearly 60% of the total market value of all eurozone-listed companies. The exclusion of non-eurozone companies means the index has slightly greater sector concentration compared to a broader European index like the STOXX Europe 600. Specifically, the EURO STOXX 50 has larger exposure to financials, telecoms and utilities, and less exposure to healthcare.

Investors should also be aware that French and German companies make up more than two thirds of the EURO STOXX 50 Index. So integrating this regional fund into a portfolio that has existing exposure to France and/or Germany might result in substantial overlap.

Investors outside the eurozone should be mindful of the currency risk inherent in this euro-denominated fund as the performance of the euro relative to the investor's home currency will affect their return.

Fundamentale Analyse

The EURO STOXX 50 NR lost about 17% of its value y/y to the end of June, reflecting a region plagued by investors' loss of confidence in the ability of its political leaders to ensure financial stability in the currency bloc.

As we write, investors remain concerned about the prospects of a Greek default. A full and unruly default by Greece could potentially cause a systemic collapse of the euro as the domino effect takes hold of weaker economies such as Spain and Italy.

The short- to medium-term outlook for the Eurozone economy remains highly uncertain and subject to substantial downside risks, including additional fiscal consolidation in many EU member states, further tightening of credit conditions as well as lower business and consumer confidence. The euro area is expected to fall into recession this year, with Italy and Spain contracting while France and Germany are expected to produce meagre growth.

Against this backdrop, the European Central Bank cut its main interest rates by 25 bps in July, taking the benchmark to a record low of 0.75% and the deposit rate to zero. Should inflationary pressures further dampen and downside risks to economic activity materialize, policy makers may consider another rate cut this year.

Meanwhile, uncertainty over a permanent resolution of the eurozone debt crisis will continue to weigh on banks most of which are feared to be under-capitalised. Following rounds of downgrades to European sovereigns’ ratings, each of the bank constituents of the EURO STOXX 50 have been downgraded. Further downgrades are looming against a backdrop of fragile funding conditions, wider credit spreads, increased regulatory burdens and generally difficult operating conditions.

Meanwhile, looking at current market valuations, one might think that stocks in the region have become relatively cheap. As of this writing the EURO STOXX 50 is trading at around 9 times next year’s earnings, well below historical levels. The index’s trailing 7-year average PE is 12-13.

While some investors may argue that the eurozone equity market is cheap for a reason, others believe that many sectors are already pricing in a negative outcome to the Eurozone sovereign debt crisis. Underpinning the belief that current valuations are low is the confidence that most of the companies making up the EURO STOXX 50 will continue to benefit from the global recovery. Indeed, ongoing demand from emerging markets should continue to contribute positively to exporters’ earnings. Exporters in the region will also likely find comfort in a weakened euro. The euro was the worst performing major currency over the last twelve months (to the end of June) with a drop of 14% and 8% against the US dollar and sterling, respectively.

Indexkonstruktion

The EURO STOXX 50 index includes 50 companies. To be eligible for inclusion a company must be headquartered in a country of the EMU. The index is weighted by free-float adjusted market capitalisation, with each component capped at a maximum of 10% of the index’s overall value. Full reviews are done in September of each year, but there are criteria which can turn over components sooner, such as a merger, bankruptcy or a constituent otherwise slipping from the ranks of the top 75. The banking sector is the biggest sector represented, comprising 13-15% of the index's value, followed by oil & gas (10-11%) and chemicals (9%). French and German companies account for more than two thirds of the index. Spanish and Italian companies represent another 20-23% and the remainder is spread amongst another eight countries. The index is fairly well-balanced from a single stock perspective. Total is the largest component of the EURO STOXX 50 with a 6% weighting. The second and third largest stocks represented are Sanofi (5%) and Siemens (4.5%).

Fondskonstruktion

The ComStage ETF EURO STOXX 50 NR uses synthetic replication to track the performance of the EURO STOXX net return index. To achieve this performance, the fund buys a basket of securities and enters an un-funded swap with parent company Commerzbank. Under this agreement, the bank gives away the performance of the index (adjusted for the swap fees) in exchange for the performance of the fund’s holdings. In line with UCITS requirements, counterparty exposure mustn’t exceed 10% of the fund’s net asset value. This means that the ETF's holdings must represent at least 90% of the fund’s net asset value at the end of any given day. As of writing, the ETF holds European blue chip stocks equivalent to 96.3% of the fund’s NAV and a swap for the remaining 3.7%. ComStage collateralises the fund’s swap so the swap counterparty is requested to post collateral consisting of German bonds equivalent to 105% of the swap value. This helps to reduce counterparty exposure. ComStage may lend out up to 100% of the securities held by the fund. As this practice introduces additional counterparty risk, the provider requires the borrowers of the securities to post collateral equivalent to 100% of the loan value. Securities lending revenues can help to reduce the fund’s tracking difference relative to its benchmark. It is left to investors to decide whether or not this is adequate compensation for the level of risk entailed. The fund’s holdings are held in segregated accounts at the custodian BNP Paribas Securities Services and monitored daily by ComStage’s management company, Commerz Derivatives Funds Solutions SA (a Commerzbank’s subsidiary), as well as the custodian, Clearstream Banking AG. The ComStage ETF EURO STOXX 50 NR is a capitalising fund, i.e. it reinvests dividends into the fund instead of distributing them periodically to investors.

Gebühren

This ComStage ETF charges a total expense ratio (TER) of 0.10%.

Alternativen

The DJ EURO STOXX 50 is the most widely-tracked index in Europe, so there are plenty of alternatives available from multiple providers, including iShares, Credit Suisse, HSBC, ComStage, Source, Lyxor, UBS, ETFLab and Accion. The largest and most heavily-traded ETF tracking the index is the Lyxor ETF EURO STOXX 50 A, which trades on Euronext Paris. The fund charges a TER of 0.25%. The cheapest option (speaking strictly in terms of TER) is offered by db X-trackers with a TER of 0.00%.

Investors interested in a more diversified exposure can look at the Ossiam ETF EURO STOXX 50 Equal Weight NR. By attributing the same weight to each of the index’s constituents, the fund seeks to avoid concentration effects. It charges an expense ratio of 0.30%.

Another smart beta product taking the EURO STOXX 50 as a starting point is the Lyxor SMARTIX Euro iSTOXX 50 Equal Risk ETF. The fund reweights the index’s components based on an equal risk contribution model, which results in a portfolio overweighting financials, consumer goods, telecommunications and utilities, while underweighting energy stocks. It has a TER of 0.25%.

Other comparable alternatives include the CS ETF on MSCI EMU Large Cap which charges 0.49%. Other options, albeit less directly comparable, include ETFs tracking broader European large cap indices such as the MSCI Europe and the STOXX Europe 600. These indices provide a broader exposure to the European equity market. Again here, there is no shortage of options. All the major providers from iShares to HSBC offer funds that track the MSCI Europe at expense ratios ranging from 0.25% to 0.35%. There is also an iShares STOXX Europe 600 with a TER of 0.21%.
Über den Autor Hortense Bioy, CFA

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