Rolle im Portfolio
Lyxor ETF DAX provides exposure to German large-capitalisation equities, and can be used as a core holding for investors looking to build a German-centric portfolio. However, it should be noted that the performance of the DAX is closely correlated to international indices. Over the past three years, the DAX has shown a 92% correlation to the widely-held EURO STOXX 50 and an 82% correlation to the MSCI World. This in part reflects the fact that some of the largest constituents of the German index, such as Siemens and BASF, are truly global players that compete worldwide in sectors like industrial materials, financial services and automobile manufacturing.
Lyxor ETF DAX can also act as a tactical tool to overweight German equities within a diversified portfolio. However, it is important for investors to examine the index’s constituents. Like many single country indices, the DAX is fairly top heavy, with the top 10 constituents accounting for almost 70% of its value. The largest holding is BASF, which accounts for about 9.9% of the portfolio. The financial sector, consisting mainly of Allianz, Deutsche Bank and Munich Re accounts for almost 20% of the index. Investors outside of the eurozone looking at this euro-denominated fund should be aware of currency risk. A weakening euro, as witnessed in early 2010 and late 2011 during the sovereign debt crisis, will weigh on the return of the fund in the investor’s home currency.
Fundamentale Analyse
Germany is the largest economy in Europe and is often referred to as the economic engine of the eurozone. The country is home to well known multinational companies representing big brands like Allianz, Siemens, BMW, and Daimler. Germany’s exports currently account for about one third of GDP, making Germany the second largest exporter in the world.
After months of negative headlines about Europe’s sovereign debt crisis, austerity measures, and tighter regulations, fears about a deepening of the crisis have faded, at least for now.
The DAX Index remains one of the most volatile stock indices in Europe. The one year trailing volatility for the DAX Index increased from as low as 13.8% in July 2011 to 29.9% in March 2012, representing the largest spike amongst major European equity indices. By way of comparison, volatility for the STOXX Europe 600 Index increased from 11.9% to 22.4% during the same period.
Despite the fact that German GDP growth has come under pressure as exports slipped due to the global economic slowdown during the final months of 2011, sentiment has picked up in recent months. The country’s business confidence indicator rose for the fourth time in a row. The so-called “Ifo”-index rose from 109.7 to 109.8 in March; versus market expectations for a decline to 109.5. The index is the most important sentiment gauge in Germany and a good leading indicator. The German PMI fell slightly in February to 50.2 but still indicates expansion. However, looking at the sector breakdown of the ifo-index, sentiment in the manufacturing sector, fell from 14.3 to 14.0 in March. Nevertheless, the government recently approved a draft budget that will balance the country’s budget by 2014, two years earlier than previously planned. The accelerated deficit-reduction can be partly attributed to the continued strength of the German economy and the implementation of the debt brake, which forces federal and state governments to limit new borrowing.
Higher oil and food prices pushed inflation up to 2.3% in February. This could impact current wage negotiations as some unions, e.g. verdi and IG Metall, are asking for a pay raise of 6.5% or more. Higher incomes and an improving labour market will ultimately benefit consumer spending. Nevertheless, ongoing political tension in the Middle East, in particular surrounding developments in Iran, will likely keep oil prices high; hence private consumption might suffer in the face of high fuel prices in the coming months.
Germany has benefited from historically low interest rates set by the ECB in the form of stronger business investment and a weak euro--which has supported exports. Even though the ECB’s mandate is to keep consumer-price inflation at bay, an unsustainable rise in property prices in Germany could pose a risk to economic stability.
Going forward, Deutsche Bank does not expect a technical recession in Germany and has forecast a stagnating economy for the first quarter and 0.25% growth during the second quarter of 2012. In addition, slowing growth in countries like China, India and elsewhere in the eurozone could continue to weigh on Germany’s exports.
Indexkonstruktion
The DAX index comprises the 30 largest companies trading on the Frankfurt Stock Exchange and represents approximately 80 % of the free-float adjusted market capitalisation of the Prime Standard Segment. The value of the DAX is based on free-float market capitalization and trading volumes. The weighting of an individual constituent is limited to 10% of the index’s value. The index weightings are reviewed quarterly and the index’s composition is reviewed once a year in September. The DAX is one of the few major country indices that is calculated on a total return basis, i.e. dividends are constantly reinvested into the index. Chemicals is the primary sector represented, with 22% of the index's value, followed by Industrial Goods & Services (14%), Automobiles & Parts (13%) and Insurance (10%). BASF is the largest component of the DAX with a 9.9% weighting. Rounding out the top three constituents are Siemens and SAP.
Fondskonstruktion
Lyxor ETF DAX uses the swap-based replication method to track the performance of the DAX total return index. To achieve this performance, the fund holds a basket of European blue chip shares and enters a swap agreement with a counterparty, which more often than not is Societe Generale. The counterparty then gives away the performance of the DAX in exchange for the performance of the fund’s holdings. According to UCITS III regulations, individual counterparty risk exposure is limited to 10% of the fund’s NAV at any point in time. According to UCITS III regulations, individual counterparty risk exposure is limited to 10% of the fund’s NAV at any point in time. According to our research, the OTC swap is not collateralised, which effectively exposes the investor to a loss of up to 10% of the NAV if the swap counterparty defaults. However, Lyxor is now committed to target zero swap exposure on a daily basis and is also considering the virtues of adopting an overcollateralised structure. Lyxor does not currently engage in securities lending, which helps to minimise overall counterparty risk.
Gebühren
At 0.15%, this fund’s total expense ratio is at the middle of the range for ETFs tracking the DAX index. It is however the only one listed on Euronext Paris.
Alternativen
The DAX is one of the most successful benchmarks tracked by ETFs in Europe, so there is no scarcity of ETF alternatives for investors. Providers including db x-trackers, iShares, Source, ETFLab and ComStage offer DAX ETFs, although at lower total expense ratios (ranging from 0.12% to 0.17%). Among all these funds, iShares DAX (DE) remains the most popular with currently EUR 12.2 billion of assets under management and a TER of 0.16%. It is also the most heavily-traded on the Frankfurt Stock Exchange as measured by the 3-month average daily trading volume, a key (but by no means comprehensive) measure of liquidity.
Alternatively, income-seeking investors could take a look at ComStage ETF DAX FR or ETFLab DAX Inc, which distribute dividends to fund holders. Of course, it is important to keep tax considerations in mind as dividend income is typically taxed at a higher rate than capital gains. Both funds’ expense ratio is 0.15%.
