Analyse: UBS-ETF MSCI USA

Though its fortunes have been overshadowed somewhat by the events unfolding in Europe, the United States has continued to show lacklustre progress towards economic recovery. The unemployment rate, while down from its highs, is still stubbornly lofty at 8.3%, and a portion of the decline seems due to some workers giving up on the job search and therefore falling out of the official calculation. Moreover, a recent study by National Employment Law Project found that a large portion of the job gains during the recovery has been in low-paying positions. GDP advanced at an annualised pace of 1.7% in the second quarter of 2012. The housing market has also been in a protracted funk thanks to an overhang of foreclosures. The S&P/Case Shiller Home Price Index 20-city composite was up 0.5% from a year earlier in the second quarter of 2012, but is still near its cyclical lows, and down more than 30% from its 2006 peak. Historically, spending by the U.S. consumer has been a key driver of growth at home and around the globe, importing a host of finished goods from China and other growing markets. But after the implosion of the residential housing bubble, recession followed by a largely jobless recovery, and reluctance of banks to make loans, the average household doesn’t have the spending clout it once did. That situation, along with increased government austerity, could limit the country’s potential for growth, even as corporate balance sheets and profitability appear healthy. To pick up the stimulus slack, monetary policy has been extremely accommodative. The Federal Reserve has lowered short term interest rates to near zero, and signalled that they will persist at current levels for the foreseeable future. It has embarked on several rounds of quantitative easing, and Chairman Ben Bernanke recently indicated that he could well embark on further accommodative moves ‘as needed.’ Despite this, the market does not appear overly worried about inflation, as evidenced by 10-year yields recently trading as low as 1.57% and 30-year Treasuries yielding less than 3%. As a result of the even bleaker situation in Europe, the U.S. has maintained its safe haven status among investors, which has enabled the government to continue to borrow on the cheap. Unless Congress intercedes to change the law, a series of major spending cuts and an expiration of Bush-era tax cuts will automatically trigger at the end of 2012, in what has been dubbed the “fiscal cliff.” The Congressional Budget Office predicts that could cause a shrinking of the deficit by $500 billion while leading to real GDP growth of -0.5% in 2013 and pushing the country back into recession. The MSCI USA Index has returned 6.01% per year over the last 10 years, though its five-year tally has been more modest at 0.78% per annum. Like most equity exposures, the index took a drubbing during the financial crisis, falling more than 51%. Much of that came from exposure to the embattled financials sector, which made up 22% of the index at the start of 2007, and has since seen its weighting decline by a third. After bottoming out at 9.4 in February 2009, the price-to-earnings ratio of the MSCI USA had climbed to 15.0 at the end of August, very close to its 15.1 average since the start of 2007.

Indexkonstruktion

The MSCI USA Index is weighted by free-float-adjusted market capitalisation. It currently contains 602 large- and mid-cap constituents, and covers roughly 84% of the U.S. equity market. Inclusion in the index requires passing screens for minimum total size and free float, trading volume, and length of trading history. The index is formally reviewed on a quarterly basis, although adjustments can be made at any time in the case of a significant corporate action. New size cut-offs are recalculated semi-annually. The ongoing reviews are meant to ensure that eligible new stocks are added to the index, and that existing stocks continue to meet criteria. To control portfolio turnover, buffers are used for existing constituents, so that they are not immediately removed upon falling out of line with any of the index’s entrance criteria. The index is broadly diversified by industry. As of the end of July, the most significant sector exposures were information technology at 19.7% and Financials at 14.1%. Health Care, Consumer Discretionary, Consumer Staples, Energy, and Industrials all had weights between 10 and 12%. There was limited portfolio concentration, with the top 10 positions accounting for just 20.3% of the total. Top holdings were Apple, Exxon Mobil, and AT&T, at respective weights of 4.4%, 3.2%, and 1.7%. The median market capitalization of constituents was $9.6 billion.

Fondskonstruktion

The fund uses full physical replication to try to capture the performance of its benchmark, owning-- to the extent possible and efficient-- shares in all of the underlying constituents in the same weights as those of the index. In certain circumstances it may also use derivatives to achieve its objectives. The fund is domiciled in Luxembourg and has the U.S. dollar as its base currency. As of writing it had assets of roughly $1.2 billion. Cash received as dividends from the underlying stocks is held by the fund until distributions are made to fund unitholders on a semi-annual basis. This can create a cash drag on the portfolio, causing it to underperform its benchmark in rising markets, and outperform in declining markets. The fund does engage in securities lending, although the extent of its use has been minimal in recent periods. In the 12 months ending on July 31st, the fund had an average of 4% of its portfolio out on loan, to a maximum of 12%. In total, the activity added roughly 1 basis point of performance to its net return.

Gebühren

The fund has a total expense ratio (TER) of 0.35%. Other costs potentially borne by the unitholder but not included in the total expense ratio include bid-ask spreads on the ETF, securities lending fees, transaction costs on the infrequent occasions when the underlying holdings change, and brokerage fees when buy and sell orders are placed for ETF shares. Income generated from securities lending could potentially recoup some of the total costs.

Alternativen

In addition to the MSCI USA, there are a number of index alternatives for the U.S. equity market, including the S&P 500, the Dow Jones Industrial Average, which is price weighted and more concentrated in its holdings, and the technology-heavy NASDAQ. To get exposure to the MSCI USA there are plenty of ETF choices, such as ComStage ETF MSCI USA, CS ETF on MSCI USA, ETFlab MSCI USA, HSBC MSCI USA ETF, Lyxor ETF MSCI USA, Source MSCI USA ETF, db x-trackers MSCI USA, iShares MSCI USA, and Amundi ETF MSCI USA. Of these, the db x-trackers product is the largest, with assets of $2.0 billion, followed by the UBS fund. The fund with the lowest expense ratio is the ComStage product, with a TER of 0.25%.