Rolle im Portfolio
The db x-trackers MSCI Europe ETF is suitable for use as either a core portfolio building block or a tactical tool. It can be used as a core portfolio building block for investors seeking exposure to equity markets across developed Europe. As for its potential uses as a tactical tool, more aggressive investors could use this ETF to overweight European equities, or it can be shorted to bet against the performance of the underlying equities to hedge an existing position.
The inclusion of Switzerland and the UK within the MSCI Europe Index makes this ETF a somewhat more diversified option than a strict eurozone equity benchmark. Still, at 0.96, the 3-year correlation between the MSCI Europe index and the MSCI EMU index has been very high. As such, there is little diversification benefit to using this fund in tandem with other vehicles tracking broad developed Europe benchmarks. Investors in the UK or Switzerland, who already have exposure to their domestic equity market, perhaps through a FTSE 100- or SMI-following ETF, should take care not to unintentionally overweight their domestic exposure in their portfolio by adding this ETF.
Fundamentale Analyse
The fear of an imminent collapse of the euro eased somewhat after European Central Bank President Mario Draghi recently announced a bond-buying program and the German constitutional court signed off on the European Stability Mechanism, with only minor restrictions.
However, the economic outlook remains gloomy. Eurozone GDP contracted by 0.2% q/q in the second quarter, whereas Germany’s economy expanded by a meagre 0.3% q/q. For the full year, the country is expected to expand 0.6% after growing 3.1% and 3.6% the previous two years. Being an export-oriented country, Germany is particularly vulnerable to the shifts in the health of the global economy, and in particular to that of the US and Asia, its main trading partners. Recent trade data has been positive as German exports to China increased by over 8% in the first six months of the year compared to the same period in 2011.
Many large European corporations, in particular export-oriented German firms, seem to be benefiting from a weakening euro. The weaker euro has been particularly beneficial to those companies predominantly producing in Europe but exporting to other countries outside the monetary union. Chemical giant BASF, for instance, said it expects turnover to increase by 5% this year on the back of a weaker euro. Other large companies like Bayer and Porsche see similar benefits and Airbus-maker EADS expects operating revenue to increase by €1bn this year as a result of currency effects. At the same time, investors should keep in mind that an appreciating euro can also create headwinds for these same firms in the event that investors regain confidence in the currency. Currently, the positive effects of the weak euro are reflected in the first estimate for the second quarter current account. According to Eurostat, the eurozone current account reflected a EUR 13.8bn surplus.
In addition, austerity measures are being rolled out in many corners of Europe. France’s ruling President Francois Hollande announced steps to cut the country’s budget deficit to 3% of GDP next year, down from an estimated 4.5% this year. The marginal income-tax rate will rise to 45%--up from 41%--with a special tax on income above €1 million over the next two years. According to the government, this will leave around 1,500 individuals with an effective tax rate of 75%. As the cuts are implemented during a very difficult time with GDP making no headway over the last 12 months and unemployment rate exceeding 10%, the budget has received criticism as increasing taxes will hold back consumer demand—the main driver of economic growth.
The UK’s economy has contracted for three consecutive quarters with GDP declining 0.4% in the second quarter of 2012. The service sector—which accounts for three quarters of GDP—was almost unchanged with a meagre 0.1% q/q drop. However, the Bank of England estimated that the extra bank holiday for the Queen's anniversary took 0.5% off GDP growth; suggesting that the underlying economy grew modestly. Nevertheless, the health of the UK’s economy depends to a large degree on the health of the eurozone; the UK’s biggest export region. On the back of lower overseas profits from UK companies, the country ran a record current account deficit in the second quarter of £20.8 billion.
Indexkonstruktion
The MSCI Europe Index includes approximately 85% of the equity market capitalisation of 16 countries across developed Europe. Components must meet minimum criteria for liquidity, as well as foreign ownership restrictions. The securities are weighed by free-float adjusted market capitalisation. Because closely held firms will have a smaller piece of their aggregate market capitalisation floated on public exchanges, the free float adjustment serves to ensure the underlying liquidity of the holdings is superior relative to a pure market capitalisation weighting. The index is reviewed four times a year. As of this writing, there are 447 stocks in the index. The index is not top-heavy, with about 20% of its total value comprised by the top ten constituents. The index has fairly limited sector concentration. The financial sector, the most represented sector in the index, represents 18% of the index’s value. With a 36% weighting, the UK is the most represented nation in the index and the only one to exceed a 15% weighting.
Fondskonstruktion
The db x-trackers MSCI Europe ETF uses synthetic replication to track the performance of the MSCI Europe index. The fund’s swap counterparty is Deutsche Bank. Instead of holding the actual securities in the index as in a physically replicated ETF, the fund contracts with a swap provider which delivers the return on the index (minus a fee) in exchange for the return on the fund’s collateral basket. The collateral backing the swap is held by third-party custodian State Street, which also monitors the counterparty exposure for each db x-trackers ETF. The collateral basket consists of shares of European, American and Asian blue chip companies. In the event of counterparty default, there is a risk that the liquidator or administrator may freeze the collateral basket, forcing fund holders to wait to reclaim their assets. Collateral levels are initially set at 105-120% of the fund's NAV, one of the highest levels in the industry. UCITS stipulates that derivative instruments from any single counterparty cannot represent more than 10% of the fund's net asset value (NAV), but in practice, the fund effectively retains zero counterparty exposure given the aforementioned level of over-collateralisation. db x-trackers does not engage in securities lending. The ETF does not distribute dividends to investors. The ETF is domiciled in Luxembourg and trades in pounds sterling on the London Stock Exchange, in US dollars on the SIX Swiss Exchange, and in euros on the Deutsche Börse, Euronext Paris, and Borsa Italiana.
Gebühren
The db x-trackers MSCI Europe ETF charges a total expense ratio (TER) of 0.30%. The fund’s TER lies in the middle of the range of ETFs tracking European equities. Other potential costs associated with holding this fund which are not included in the TER include rebalancing costs, bid-ask spreads and brokerage fees.
Alternativen
There are several ETFs offering European equity exposure, tracking different indices. The largest alternative in terms of total asset under management is the iShares STOXX Europe 600 (DE) ETF, which uses physical replication and levies a TER of 0.20%. The underlying index is very similar to the MSCI Europe Index in terms of sector and country exposure. However, the MSCI Europe Index has slightly fewer constituents but a similar exposure to the financial sector at the cost of a slightly lower exposure to industrials. Investors look for a pure eurozone exposure can make use of the Lyxor ETF EURO STOXX 50. This ETF uses synthetic replication and levies a TER of 0.25%.
