db x-trackers Stoxx® Europe 600 UCITS ETF 1C |
par
Gordon Rose, CIIA, CAIA08/05/2013
Stratégie d’investissement
The db x-trackers STOXX Europe 600 ETF provides exposure to European large-, mid- and small- cap equities. The index correlated 90% with the MSCI World USD Index over the last three years, hence diversification benefits are limited. As the index is well diversified across countries and sectors, the ETF is best deployed as a core holding in a portfolio.
Given the high degree of diversification, the ETF is most suitable for investors believing in a broad improvement of the European economy. Before considering an investment in this ETF, investors should be aware of existing exposure to Europe through other holdings (for example the constituents of the STOXX 600 Index comprise nearly 30% of the MSCI World Index) to avoid unintentionally overweighting European equities. In addition, the index is biased towards the UK (32% of the index’s value) and therefore investors should look at country specific holdings--e.g. FTSE 100--as well to avoid unintentionally overweighting on a country level.
Analyse fondamentale
The economic outlook for Europe remains rather gloomy. The Ifo-Index in Germany, a business confidence indicator, fell to 104.4 in April; down from 106.7 a month earlier and below expectations for a slight retreat to 106.2. In addition, private-sector activity in the Eurozone dropped again in April, while business activities in Germany fell the first time since November. The composite PMI in the Eurozone remained unchanged at 46.5 while pointing towards a further drop in manufacturing output as new orders declined for a 21 straight months to month. Germany’s PMI dropped below the threshold of 50; reaching 48.8, while France PMI eased slightly to 44.2.
The sharp drop in business confidence in the once resilient economy of Germany, coupled with weak economic data in the rest of the monetary union and the absence of inflationary pressures, led the European Central Bank to cut interest rates to a new historical low of 0.50% from 0.75% at its May policy meeting, while leaving the door open for further monetary stimulus should the situation deteriorate.
The latest credit conditions survey from the ECB reported a drop in credit demand from companies and households, underscoring the loss of consumer confidence, despite cheap access to funding. Eurozone GDP has contracted for five consecutive quarters to end 2012, while more recent data suggest a contraction in the first three months of the year as well.
On the back of continuously weak data, international bodies such as the IMF have raised concerns as to whether the austerity measures implemented by many European countries are still the best approach to solve the crisis. The same message has been echoed by European Commission President José Manuel Barroso. Though not abandoning the fiscal austerity principle, the EU has already given Eurozone peripheral countries extra years to achieve their budget deficit elimination programmes, which should thus slow down the pace of cuts and, hopefully, aid growth. .
Accelerating cost cutting by European companies on the back of a gloomy economic outlook should continue to weigh on consumer sentiment as companies lay off workers and close plants. Unemployment in France and Spain is at historical highs, while Germany’s new-car registrations have dropped by 12% y/y
Outside the Eurozone, the UK avoided slipping into its third recession since the financial crisis by posting a 0.3% q/q expansion in GDP in Q1-13. Despite this relief, Finance Minister George Osborne remains under pressure to boost economic growth via spending and to relax austerity targets; particularly after Fitch Rating followed Moody’s in stripping the country of its triple A-rating. The IMF has suggested to slow the pace of spending cuts given the weak economy and lowered its UK growth forecast for 2013 from 1% down to 0.7%, while lowering expectations for 2014 from 1.8% to 1.5%.
Going forward, weak economic indicators for Northern Europe, like Germany, raise concerns that the policy response to the long-running sovereign debt-crisis is starting to also affect these countries. Overall, market consensus points towards a weak summer for the European economy. However, looser austerity measures and a longer time-frame to deliver budget consolidation measures could support an economic recovery.
Construction de l’indice
The db x -trackers STOXX Europe 600 ETF provides equity exposure to large-, mid-, and small- capitalisation companies in Europe. The STOXX 600 Index is a free float market capitalisation weighted index, derived from the Dow Jones STOXX Total Market Index (TMI) and a subset of the Dow Jones STOXX Global 1800 Index. The index includes a fixed number of 600 stocks representing over 10 sectors across 17 countries. This captures 95% of the free float market capitalisation of the stocks traded on the major exchanges in those countries. As of this writing the largest country exposure is the UK (32%), followed by France (15%) and Switzerland (14%). The index is well diversified across sectors with a bias towards financials (21%), followed by consumer goods (18%) and industrials (13%).
Construction du fonds
The db x-trackers Stoxx Europe 600 uses synthetic replication to track the performance of the Stoxx Europe 600 index. To achieve this return, the fund invests in a basket of European and Asian blue chip shares and enters a swap agreement with Deutsche Bank. The swap counterparty then gives away the performance of the Stoxx Europe 600 index in exchange for the performance of the fund’s basket of securities. The marked-to-market value of this basket is reviewed on a daily basis to ensure that it doesn’t fall under regulatory limits. In line with UCITS III requirements, the basket of assets used as collateral must represent at least 90% of the fund’s NAV at all times, i.e. counterparty exposure mustn’t exceed 10% of the fund’s NAV. In reality, db x-trackers resets swaps to zero whenever (i) the exposure to the swap counterparty reaches 5% of the NAV of the ETF and/or (ii) whenever there is a subscription/redemption at the fund level. Resetting swaps to zero brings counterparty exposure to zero. db x-trackers doesn’t engage in securities lending within this ETF, which limits counterparty risk.
Frais
The fund levies a total expense ratio of 0.20%. This falls at the lower end for ETFs tracking European equities. Other potential costs associated with holding this fund which are not included in the TER include swap costs, bid-ask spreads and brokerage fees.
Alternatives
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%. Investors preferring a slightly different index can make use of the iShares MSCI Europe. This ETF also uses physical replication and levies a TER of 0.35%. The underlying index is very similar to the STOXX Europe 600 Index in terms of sector and country exposure. However, the MSCI Europe Index has slightly fewer constituents. 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%.
