Rolle im Portfolio
The fund provides broad exposure to Italian large-cap equities and can be used as a core building block for those looking to build a diversified Italian-centric portfolio. However, investors should be aware that the top four constituents account for about half of the total value of the FTSE MIB index. Financials is the top sector with a weight of 31-35%.
This fund can also serve as a tactical tool for those looking to place a bet on the near-to-medium-term prospects of the Italian stock market under the belief that the it is undervalued. But as is the case with other European equity benchmarks, the FTSE MIB consists of truly global players which derive a large part of their revenues from their overseas activities. So, placing a tactical bet on this fund means taking a bet on the outlook for both the Italian and global economies.
Investors outside of the eurozone considering buying this fund should be wary of currency risk.
Fundamentale Analyse
Italy, together with Spain, has been one of the worst-performing European equity markets since the start of the financial crisis, with the FTSE MIB TR index losing about 63% of its market capitalisation from the pre-crisis highs of 2007 to the lows of mid-2012. Factors including the country’s dire economic situation and the poor health of its financial sector in the midst of Europe’s sovereign debt crisis severely impaired FTSE MIB companies’ valuations.
With the easing of the crisis in H2-12 following the European Central Bank (ECB)’s unequivocal pledge to “do whatever it takes” to preserve the euro, the FSTE MIB bounced back, registering a gain of about 27% in the year to end June 2013. Italian banks, which account for about 22% of the index, rebounded on the back of cheaper access to international funding and decreasing dependence on ECB loans. However, their prospects look bleak, with profitability expected to remain persistently weak in the next few years. Additional hurdles include deteriorating asset quality and modest capital adequacy.
On the macroeconomic front, the austerity measures carried out by former Italian Prime Minister Mario Monti have deepened the country’s fourth recession since 2011. Italy’s economic activity contracted 2.4% y/y in 2012 and will continue to shrink. Constrained by subdued domestic demand, record-high unemployment and weak exports, Italy’s GDP is expected to fall by 1.8% in 2013, according to the OECD.
Yet, looking on the bright side, Monti’s austerity package has helped bring Italy’s deficit within the European Union’s limit, while the country continues to produce budget primary surpluses year after year. Also reassuring is the resolution of the political uncertainty that followed February’s general election. The new Government led by Democrat Enrico Letta has promised to stay on the path of reform, while pushing through growth-boosting measures. This – not to mention the ECB’s stance – has eased pressure on Italian government bonds (e.g. the 10-year yield fell below 4% in May for the first time since 2010), thus creating some room for manoeuvre. In any case, fiscal discipline needs to be maintained as market sentiment remains volatile.
Indexkonstruktion
The FTSE/MIB (known as the S&P/MIB prior to June 2009) is the benchmark stock market index for the Italian equity market. Capturing approximately 80% of the domestic market’s capitalisation, the FTSE/MIB Index measures the performance of the 40 most liquid and best capitalised Italian shares and seeks to replicate the broad sector weights of the Italian stock market. The index was administered by Standard & Poor's from its inception until June 2009, when this responsibility was passed to FTSE Group, which is 50% owned by the Borsa Italiana's parent company London Stock Exchange Group. The index is fairly top-heavy with the top 10 stocks comprising over 70% of its weighting. The index’s top sector exposures include financials (31-35%), oil & gas (20-25%) and utilities (16-18%). The index’s largest constituent is ENI with a 14-15% weighting, followed by Generali, Unicredit and Enel.
Fondskonstruktion
The fund uses synthetic replication to track the performance of the FTSE MIB Net Total Return index. To achieve this performance, the fund buys a basket of securities and enters an un-funded swap agreement with parent company Societe Generale. Under this agreement, the ETF receives the performance of the index in exchange for the performance of the fund’s holdings. In line with UCITS III requirements, counterparty risk exposure mustn’t exceed 10% of the fund’s net asset value. This means that the ETF's holdings, which may change every day, must represent at least 90% of the fund’s net asset value at the end of any given day. However, Lyxor has a daily target of zero swap exposure. The company resets swaps whenever their value becomes positive. Swaps may also have a negative value (between -2% and 0%), which would be in essence identical to an over-collateralisation of the fund. As of this writing, the ETF holds a very large majority of European blue chip equities and less than 5% of Japanese and US stocks. Additionally, the ETF holds a fund that invests in a repo fully collateralised with European equities. The repo agreement helps to partially offset the value of the swap, thus reducing counterparty risk exposure. As we write, the ETF has a negative swap exposure of 0.34% to Societe Generale. Lyxor’s risk department monitors the fund’s holdings and swap exposure on a daily basis. ETF holdings are held in segregated accounts at Lyxor’s custodian, Société Générale Security Services. No securities lending is implemented within this fund, which limits counterparty risk at the fund's level. This ETF distributes dividends.
Gebühren
The fund has a total expense ratio (TER) of 0.35%, which is at the high-end of the range for ETFs tracking the FTSE MIB. Additional costs potentially borne by the fund shareholder but not included in the TER include swap costs, and bid-ask spreads and brokerage fees when buy and sell orders are placed for ETF shares.
Alternativen
The Lyxor ETF FTSE MIB is the largest ETF tracking the FTSE MIB as measured by assets under management. It is also one of the most liquid as measured by its trailing 3-month average daily trading volume. This high level of exchange liquidity is a positive feature that allows investors to benefit from tight bid-ask spreads, thereby reducing transaction costs.
There is no scarcity of alternatives for investors looking for exposure to Italian large cap equities. Providers including iShares, db X-trackers and Amundi offer their own FTSE MIB ETFs at TERs ranging from 0.18% to 0.35%. Amundi charges a TER of 0.18%. Amundi also offers an ETF that tracks the MSCI Italy at a TER of 0.25%.
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