Rolle im Portfolio
This EURO STOXX ETF offers broad-basket equity exposure to large- and mid-cap companies domiciled within the European Monetary Union.
The ETF tracks the Euro Stoxx Index, which, with around 300 constituents, is well-representative of the available opportunity set.
The breadth of holdings offers investors strong diversification at the stock level. On a sector level, one fifth of index weighting is taken by financial services. All other sectors currently represent less than 15%. French and German companies account for almost two thirds of the index, and Spanish and Dutch companies another 20%.
The fund levies a total expense ratio of 0.20% and is therefore competitively priced relative to the eurozone large-cap equity Morningstar Category average and other comparable passive alternatives. As the world's leading provider of ETFs, iShares enjoys vast economies of scale, which can be passed on to investors in the form of lower fees.
On a risk-adjusted basis, the fund has performed admirably against its surviving category peers, which include both active and passive funds. It has ranked in the top quartile during the trailing three-, five-and ten-year periods.
Like most ETFs tracking the broad European equity indexes, the fund, which uses full physical replication, has outperformed its benchmark in recent years. This outperformance can be attributed to the use of tax optimisation (the fund enjoys a better withholding tax rate than the index) and efficient portfolio management techniques (such as securities lending).
It should be noted that this fund is domiciled in Germany and, as such, may be most suitable for German-based investors.
In sum, this ETF offers efficient broad-basket exposure to European Monetary Union equities.
Fundamentale Analyse
Investors in eurozone equities have a lot to thank the European Central Bank for since the 2011-12 sovereign debt crisis, which threatened to break up the Monetary Union. The MSCI EMU Index has risen more than 70% since Mario Draghi's pledge in mid-2012 to "do whatever it takes" to preserve the euro. As of this writing, the Euro Stoxx Index hovers around its 2007 precrisis highs.
The unprecedented quantitative easing programme unveiled by the ECB in January 2015 has given investors fresh reason to be optimistic about the region. The programme, which was expanded in March 2016, now involves the buying of EUR 80 billion of government bonds on a monthly basis until, at the earliest, March 2017. Full-blown quantitative easing represents the latest, and most dramatic in a series of economic stimulus measures introduced by the ECB, including earlier asset-buying initiatives (for example, covered bonds) and successive interest-rate cuts that have left lending rates hugging the zero bound. Such an enormous and sustained stimulus package, in conjunction with a falling euro and low energy prices, can be expected to boost price levels and stimulate growth.
In spite of a more positive domestic macro outlook, downside risks to eurozone equity valuations remain. The potential for significant political tensions within the monetary union has resurfaced with the election of the Syriza coalition in Greece, which swept to power on an anti-austerity, debt-forgiveness ticket. The spectre of a "Grexit" refuses to recede, and the resultant uncertainty continues to blight the eurozone. This said, the risks of contagion within the monetary union appear to have subsided for the time being.
Elsewhere, although there have been signs of progress, the lack of wide-ranging structural reforms in countries like France and Italy remains a concern, too. Fiscal discipline and relaxation of labour laws in these two countries are deemed essential if the ECB's ultraloose monetary policy is to be fully effective.
It should not be forgotten that a large portion of the Euro Stoxx Index comprises predominantly large, stable, high-quality companies that do a large amount of business internationally. Some of the largest index components are companies with a large presence in emerging markets--Latin America in the case of Banco Santander, and Asia in the case of Unilever. These multinationals fortunes will be tied, at least in part, to those of emerging markets.
Indexkonstruktion
The Euro Stoxx Index is a broad yet liquid subset of the Stoxx Europe 600 Index. With a variable number of components, the index represents large- and mid-cap companies of 18 eurozone countries. The Euro Stoxx, which is made up of approximately 300 constituents, is weighed by free-float adjusted market capitalisation. The index is reviewed quarterly for changes in composition and free-float. French and German companies account for almost two thirds of the index. Spanish and Dutch companies weigh another 20%. At the time of writing, the top sector weighting is financial services (20%), followed by consumer cyclical (13%), industrials (13%), and consumer defensive (10%). French oil and gas giant Total, chemical and pharmaceutical multinational Sanofi, and Belgian brewer Anheuser-Busch InBev are the three largest index constituents, each maintaining around a 3% weighting.
Fondskonstruktion
The fund uses full replication to track the performance of the Euro Stoxx net total return index. It buys all the securities within the index in the same weightings stipulated by the index. The fund uses futures for cash equitisation purposes, which helps to reduce tracking error. IShares engages in securities lending to generate additional revenues. Gross lending revenue is split 62.5/37.5 between the fund and lending agent BlackRock, with the latter covering all the operational costs. For the year ended March 2016, the net return to the fund was 0.02%. Although this activity helps to offset part of the fund's holding costs, it potentially exposes investors to counterparty risk. To protect the fund, borrowers are requested to post collateral greater than the loan value. Collateral levels vary from 102.5% to 112% of the value of the securities on loan, depending on the assets provided by the borrower as collateral. The iShares website reveals that 1.23% of the fund's net asset value was lent out on average during the year ended March 2016, with a maximum on-loan level on any single day of 4.99%. As a general rule, iShares ETFs are allowed to lend up to 100% of their assets. As an additional safeguard, BlackRock provides a guarantee in the event of a borrower default--if a shortfall existed between the collateral and the cost to repurchase a loaned security, BlackRock would reimburse the ETF in full.
Gebühren
The fund charges a total expense ratio (TER) of 0.20%, which sits toward the high end of the range for ETFs tracking broad European benchmarks. Additional annual holding costs borne by the investor include rebalancing costs. But revenues from securities lending help to offset part of these holding costs. On top of holding costs, an ETF investor will typically have to pay trading costs, including bid-offer spreads and brokerage fees, when buy and sell orders are placed for ETF shares. It is worth noting that the fund has outperformed its benchmark index during the past few years by 0.4%-0.6% per year. This outperformance can be mainly explained by the differences in withholding tax treatment between the methodology of the fund and that of the index.
Alternativen
As an alternative to this fund, investors could turn to ETFs that track the MSCI EMU Index, which offers directly comparable exposure.
There is no shortage of MSCI EMU ETFs offered by providers such as UBS, Amundi, Lyxor, SPDR, and ComStage. Currently, of all the funds tracking the MSCI EMU, db x-trackers MSCI EMU DR ETF charges the lowest management fee (total expense ratio of 0.15%).
Meanwhile, investors seeking pure exposure to the eurozone's largest stocks could consider ETFs tracking the Euro Stoxx 50, which is the most widely used index in Europe. And there are plenty of options available from multiple providers, including but not limited to, iShares, db X-trackers, Lyxor, Amundi, and Source.
Other alternatives, albeit less directly comparable, include ETFs that track broader European large-cap indexes such as the MSCI Europe and the Stoxx Europe 600. These indexes include non-EMU stocks--most prominently UK and Swiss stocks. And again here, there is no shortage of options.
