Analyse: Source MSCI USA ETF

Fundamentale Analyse

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 8.2%, and a portion of the decline seems due to some workers giving up on their job search and therefore falling out of the official calculation. GDP advanced at an annualised rate of 1.9% in the first quarter of 2012, slightly slower than the 2.1% rate seen in the first quarter of the year before. 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 is still at or near its cyclical lows, registering levels not seen since January 2003, and more than 33% down from its peak in 2006. Historically, spending by the U.S. consumer has been a key driver of growth domestically 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. Further, it has embarked on several rounds of quantitative easing. Despite this, the market does not appear overly worried about inflation, as evidenced by 10-year yields currently as low as 1.75% 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. With a federal election looming in the fall, cooperation across party lines has been elusive. The situation could come to a head in coming months as both sides negotiate over the debt ceiling. Similar squabbles last summer led to a downgrade of U.S. debt by Standard & Poor’s, and a sharp sell-off in equity markets. The MSCI USA Index has produced an average total return of 8.14% over the last 20 years, though the 10- and 5-year annual results have been more modest at 4.28% and -0.75%, respectively. Like most equity exposures, the index took a drubbing during the financial crisis, falling more than 43% in the year ending February 2009. Much of that came from exposure to the embattled financials sector, which represented roughly 22% of the index at the start of 2007, but has since seen its weighting decline by a third. A lot of that reduced weight has been replaced by the information technology sector, which has gone from a 15% weight to roughly 20%. After bottoming out at 9.4 in February 2009, the price-to-earnings ratio of the MSCI USA has climbed to 14.0 at the end of May, which is still a little below its trailing 5-year average of 14.9. 

Indexkonstruktion

The MSCI USA Index is weighted by free-float-adjusted market capitalisation. It contains 583 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 May, the most significant sector exposures were information technology at 19.9% and Financials at 13.9%. 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 20.2% of the total. Top holdings were Apple, Exxon Mobil, and IBM, at respective weights of 4.4%, 3.1%, and 1.9%. The median market capitalisation of constituents was $9.4 billion. 

Fondskonstruktion

Although Source labels the replication method as “physical with swap overlay,” it is, as the rest of the market defines the term, synthetic. The ETF uses an unfunded swap to achieve the total return of the MSCI USA Index, meaning that it owns the basket of securities that acts as collateral in the swap. Source offers complete transparency on that collateral basket; currently it is made up almost entirely of publicly-listed European equities from a diverse set of industries. Source is owned by Goldman Sachs, Bank of America Merrill Lynch, JP Morgan, Morgan Stanley, and Nomura, and it uses all of these entities as counterparties to the swaps in its ETFs. The use of multiple counterparties can diversify and thus mitigate counterparty risk for synthetic products. Source’s policy is to reset to zero the fund’s exposure to any counterparty when it reaches 0.2% of the fund’s net asset value at the end of any day, and if necessary to cap overall exposure to all counterparties at 4.5%. Under the terms of the swap, the counterparty agrees to provide the fund with exposure to the total return of the underlying index, net of any costs or fees associated with providing the exposure. The return from the swap assumes that all dividends paid by the underlying stocks are reinvested in the index. The fund does not pay out any dividend distributions. The fund is domiciled in Ireland, has the U.S. dollar as its base currency, and has UK reporting status. At the time of writing it had assets of roughly $270 million. The fund does not engage in any securities lending activity. 

Gebühren

The fund’s total expense ratio (TER) is 0.30%. Other costs potentially borne by the unitholder but not included in the total expense ratio include swap fees, bid-ask spreads on the ETF, transaction costs on the infrequent occasions when the underlying index holdings change, and brokerage fees when buy and sell orders are placed for ETF shares. 

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, db x-trackers MSCI USA, ETFlab MSCI USA, HSBC MSCI USA ETF, Lyxor ETF MSCI USA, CS ETF(IE) on MSCI USA, UBS-ETF MSCI USA, iShares MSCI USA, and Amundi ETF MSCI USA. Of these, the db x-trackers product is the largest, with assets of $1.9 billion, followed by the UBS fund with assets of $1.2 billion. The fund with the lowest expense ratio is the ComStage product, with a TER of 0.25%.