Analyse: Amundi ETF EURO STOXX 50 (C)

Investors outside the eurozone should be mindful of the currency risk inherent in this euro-denominated fund as the performance of the euro relative to the investor's home currency will affect their return.

Fundamentale Analyse

The Dow Jones EURO STOXX 50 NR was one of Europe’s worst performing indices in 2011, finishing the year with a decline of over 14%, reflecting a region plagued by concerns about its ability to tackle the sovereign debt crisis.

As we write, investors remain worried about the prospects of a Greek default. A full and unruly default by Greece could potentially cause a systemic collapse of the euro as the domino effect takes hold of weaker economies such as Portugal, Ireland, Spain, Italy and potentially even France. While all these countries have seen their credit ratings downgraded by S&P, Germany remains the only Eurozone member to maintain a stable AAA rating from the agency.

The outlook for the Eurozone economy remains highly uncertain and subject to substantial downside risks, including additional fiscal consolidation in many EU member states, further tightening of credit conditions as well as lower business and consumer confidence. The euro area is expected to fall into recession in 2012 with Italy and Spain likely to contract while France and Germany are expected to produce meagre growth.

Uncertainty over a permanent resolution of the eurozone debt crisis will continue to weigh on the financial sector, especially French and German banks which have a high degree of exposure to the riskiest eurozone sovereigns. Following rounds of downgrades to European sovereigns’ ratings, each of the bank constituents of the EURO STOXX 50 have been either downgraded or put on review. This can be attributed to more fragile funding conditions, wider credit spreads, increased regulatory burdens and generally difficult operating conditions.

Meanwhile, looking at current market valuations, one might think that stocks in the region have become relatively cheap. As of this writing the EURO STOXX 50 is trading at around 9 times next year’s earnings, well below historical levels. The index’s trailing 7-year average PE is 12-13, and its average dividend yield over the same period has been 4.25%.

While some investors may argue that the eurozone equity market is cheap for a reason, others believe that many sectors are already pricing in a negative outcome to the Eurozone sovereign debt crisis. Underpinning the belief that current valuations are low is the confidence that most of the companies making up the EURO STOXX 50 will continue to benefit from the global recovery. Indeed, ongoing demand from emerging markets should continue to contribute positively to exporters’ earnings. Exporters in the region will also likely find comfort in a weakened euro. The euro was the worst performing major currency in 2H-2011, registering a drop of 10.5% and 7.5% against the US dollar and sterling, respectively.

Indexkonstruktion

The Dow Jones EURO STOXX 50 index includes 50 companies. To be eligible for inclusion a company must be headquartered in a country of the EMU. The index is weighted by free-float adjusted market capitalisation, with each component capped at a maximum of 10% of the overall index's value. Full reviews are done in September of each year, but there are criteria which can turn over components sooner, such as a mergers, acquisitions, bankruptcies, or components otherwise slipping from the ranks of the top 75. By style, the index leans towards value, with 52% of the weighting in that category and only 16% in growth. Financials is by far the biggest sector represented, accounting for nearly 30% of the index's value, followed by industrials (11%) and energy (9%). French and German companies account for more than two thirds of the index. Spanish and Italian companies combine to represent another 23% and the remainder is spread amongst another eight countries. The index is fairly well-balanced from a single stock perspective. Total is the largest component with a 5.5% weighting. The second and third largest stocks represented are Siemens (5%) and Telefonica (4%).

Fondskonstruktion

The Amundi ETF EURO STOXX 50 (C) uses synthetic replication to track the performance of the EURO STOXX 50 Total Net Return index. To achieve this performance, the fund buys a basket of securities and enters an un-funded swap with Credit Agricole. Under this agreement, the bank gives away the performance of the index (adjusted for the swap spread) in exchange for the performance of the fund’s holdings. In line with UCITS requirements, counterparty risk exposure mustn’t exceed 10% of the fund’s net asset value. This means that the fund’s holdings, which consist of shares of the MSCI Europe index universe, must represent at least 90% of the fund’s net asset value at the end of any given day. As of this writing, the fund has a net swap exposure to Credit Agricole of 1.70%. The substitute basket is made up exclusively of European stocks with a majority of eurozone large cap equities. No securities lending is implemented within this fund, which limits counterparty risk at the fund's level. This ETF does not distribute dividends to investors. All the dividends paid out by the EURO STOXX 50’s constituents are reinvested net of tax into the index until they are distributed once a year to fund holders.

Gebühren

The Amundi ETF EURO STOXX 50 (C) charges a total expense ratio (TER) of 0.15%.

Alternativen

The DJ EURO STOXX 50 is the most widely-used index in Europe, so there are plenty of alternatives available from multiple providers, including iShares, Credit Suisse, HSBC, ComStage, Source, Lyxor, UBS, ETFLab and Accion. The largest and most heavily-traded ETF tracking the index is the Lyxor ETF EURO STOXX 50 A, which trades on Euronext Paris. The fund charges a TER of 0.25%. The cheapest option, in TER terms, is offered by db X-trackers with a TER of 0.00%.

Investors interested in a more diversified exposure can look at the Ossiam ETF EURO STOXX 50 Equal Weight NR. By attributing the same weight to each of the index’s constituents, the fund seeks to avoid concentration effect. It charges an expense ratio of 0.30%.

Other comparable alternatives include the CS ETF on MSCI EMU Large Cap which charges 0.49%.

Other options, albeit less directly comparable, include ETFs tracking broader European large cap indices such as the MSCI Europe and the STOXX Europe 600. These indices provide a broader exposure to the European equity market. Again here, there is no shortage of options. All the major providers from iShares to HSBC offer funds that track the MSCI Europe at expense ratios ranging from 0.25% to 0.35%. There is also an iShares STOXX Europe 600 with a TER of 0.21%. It has by far the most on-exchange volume of any of the ETFs tracking that index.