Rolle im Portfolio
The iShares MSCI Europe (Inc) ETF offers exposure to large- and mid-capitalisation companies from developed Europe (i.e. Eurozone, UK, Switzerland and Nordics). As a region, Europe represents the world’s largest GDP and the second biggest equity market after the US.
This ETF is best deployed as a core equity holding, but it can also be used as a tactical tool by investors who want to overweight the region in their investment portfolio. However, investors who already have exposure to the Eurozone, UK, Switzerland or the Nordic countries through other vehicles should ensure that they do not unintentionally overweight exposure by too wide a margin to a particular region.
Despite its broad geographic exposure, this fund does not offer significant diversification benefits when used in conjunction with other funds providing broad exposure to developed markets. The MSCI Europe index correlation with MSCI World and MSCI EMU on a ten-year basis is almost perfect.
This fund distributes dividends on a quarterly basis, and therefore it is suitable for income-seeking investors.
Fundamentale Analyse
The European equity market, as measured by MSCI Europe, has underperformed MSCI USA and MSCI World on a risk-adjusted basis over the past 10-, 5- 3, and 1-year periods out to end-July 2015. Examining the returns a little closer, we find that Eurozone countries –45% of the index – performed the worst over the 5- and 10-year periods, whereas the UK – 30-35% – has been the main drag in the 3- and 1-year periods.
The Eurozone's past sub-par performance is hardly surprising given the struggles of the Euro debt crisis. The UK economy, on the other hand, recovered well from the post-Lehman lows. However, its equity market is highly exposed to financials and energy (around 40% of MSCI UK), and the mix of structural issues within the banking system and falling energy prices have outweighed other positive domestic developments.
The Eurozone has seen a turnaround in fortunes in recent times –as evidenced by rising P/E ratios - to become one the most popular developed market equity investment propositions. This optimism has been largely driven by the market’s positive reaction to the ECB policy stance; particularly so the launch of quantitative easing in January 2015. Since then, MSCI Eurozone has outperformed MSCI World and MSCI USA by 2.8% and 3.4%, respectively, out to end August 2015.
Market participants expect that the ECB stance will boost the Eurozone’s economic performance going forward. Current data for the region still shows GDP growth below its historical average, with investment particularly lagging. Unemployment continues to be high, particularly in the periphery. At face value, the Eurozone could seem overvalued and vulnerable to downside risks. However, albeit proceeding at a slow pace, there has been an improvement in the main economic indicators.
The UK economy continues to perform strongly. However, UK equity market valuations may continue to be impacted by the falling trend on commodities prices and the ongoing structural changes within the banking sector. Furthermore, as the Bank of England gears up towards raising interest rates, many large-cap companies which derive their profits from overseas will have to contend with increased currency risk. As we write, MSCI UK stands as a comparatively cheap investment proposition relative to broad developed markets, with a P/E ratio of 16.41 versus 19.62 and 19.04 for MSCI World and MSCI Europe. However, it also offers the highest dividend yield. This shows that the UK stocks can eventually cushion sharp sell-offs.
Overall, the main short-term concern for investors in broad European equity is slowing growth in emerging markets. This is already taking its toll on the region’s large-cap companies, as a substantial proportion of their revenues are derived from the likes of China, Latin America and Africa. On a longer term horizon, investors should focus on risks to the Eurozone recovery (e.g. resurfacing of debt crisis) and the UK’s equity market reaching its potential.
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 weighted by free-float adjusted market capitalisation. The index is reviewed four times a year. The index offers exposure to approximately 400 large- and mid-cap European companies, representing all major sectors. Accounting for about a third of the index weight, the UK is the most represented nation, followed by France, Switzerland and Germany (all about 13-17% of the index’s value). Meanwhile, it has fairly limited sector concentration, with financials accounting for 20-25%, followed by health care and consumer staples (both 10-15%). The index is also well-diversified at stock level, with about 20% of its total value comprised by the top ten constituents. As of this writing, the largest single equity exposures are Nestle, Novartis and Roche Holding, each with a weight of 2-3%.
Fondskonstruktion
iShares uses optimised sampling to track the performance of MSCI Europe Index. The fund uses futures for cash flow and dividend management purposes. This is standard practice and helps limit tracking error. iShares engages in securities lending and can lend up to 100% of the securities within this fund to improve its performance. The gross revenues generated from this activity are split 62.5/37.5 between the fund and the lending agent BlackRock, whereby BlackRock covers the costs involved. The fund lent out lent out 7.09% on average over the 12 months ending June 2015. To protect the fund from a borrower’s default, BlackRock takes collateral greater than the loan value. Collateral levels vary between 102.5% and 112% of the value of securities on loan, depending on the assets provided by the borrower as collateral. Additional counterparty risk mitigation measures include borrower default indemnification. Specifically, BlackRock commits to replace the securities that a borrower would fail to return. The indemnification arrangement is subject to changes, and in some cases without notice.
Gebühren
This fund levies a total expense ratio of 0.35%, which is in the middle of the range for ETFs tracking the broad European equity market. Other potential costs associated with holding this fund which are not included in the TER include rebalancing costs, bid-ask spreads and brokerage fees. Income generated from securities lending helps to recoup some of the total costs. For the one-year period ending July 2015 the fund has outperformed its benchmark by 0.04%
Alternativen
Investors seeking to invest in European equities have access to over 75 ETFs of significant size, some of which marketed with in-built currency hedges. They can choose broad exposure to the region, including or excluding the United Kingdom, as well as restrict it to just the Eurozone. In addition, they can select from a growing range of strategic beta ETFs focusing on factors such as value, quality or dividends.
There are over 20 ETFs providing similar geographical exposure to this iShares fund, with fees ranging from 0.12% to 0.51%. The most popular in AUM terms are the iShares STOXX Europe 600 (physical; 0.20%), db x-trackers MSCI Europe (DR ) 1C (physical; 0.30%) and Lyxor ETF MSCI Europe (synthetic; 0.25%).
There is also a growing number of strategic beta products focused on the European equity market. Currently, dividend and minimum volatility strategies dominate the landscape. Popular products in AUM terms include iShares EURO Dividend (physical; 0.40%), SPDR S&P Euro Dividend Aristocrats (physical; 0.30%) and iShares MSCI Europe Minimum Volatility (physical; 0.25%). Other strategies include growth, quality, value and multi-factors.
