New EuroStoxx 50 ETF Hits U.S. Markets
One of the largest ETF issuers in Europe, Source, recently introduced a brand new product in the U.S. markets. The issuer manages more than $19 billion worth of assets globally and has more than 80 exchange traded products listed abroad that offer exposure to a range of industries, including equities, fixed, income, and alternatives.
Lee Kranefuss – the brainchild behind building iShares into the world’s largest ETF issuer – is presently the executive chairman of Source. Given his extensive expertise, industry experts believe that Source is expected to carve out a niche for itself in the U.S. ETF market as well (read: ETF Issuers Still Favor Euro Zone: Two European Funds Planned).
While that remains to be seen, below we have highlighted some of the details of the newly launched ETF – EURO STOXX 50 ETF (:ESTX) -- which made its debut on 16th of this month.
ESTX in Focus
The fund tracks the EURO STOXX 50 Index to provide exposure to 50 blue-chip companies from 12 Euro zone countries, including Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Presently, France and Germany combine to form over two-thirds of the index’s weight, followed by Spain with 13.2% allocation. Sector-wise, Financials dominates the fund with more than one-fourth allocation, followed by Industrials and Healthcare with double-digit allocation each.
Total SA, Sanofi and Banco Santander S.A. are the top three holdings with a combined allocation of 15.4%. The fund will charge 16 basis points as fees (read: Buy these 2 Hedged Europe ETFs after ECB action).
How Do They Fit in a Portfolio?
The fund is a good choice for investors seeking exposure to the Euro zone. The European Central Bank (:ECB) recently made a surprise move by cutting interest rates to a record low and also announcing stimulus measures to free the Euro zone from deflation fears and to boost economic growth.
Among the latest measures, ECB cut its main refinancing rate to another historic low of 0.05% from 0.15% and drove the deposit rate paid by the ECB to banks for parking funds with it overnight further into negative territory at – 0.20%. Additionally, the ECB president Mario Draghi rolled out a program to buy asset-backed securities from Euro zone banks starting next month (read:3 European ETFs Worth Considering on ECB Measures).
These measures are expected to boost investment and growth in the stagnant euro zone economy, which is reeling under recession. This is likely to lift European stocks further, which are already trading near their six-year high.
ETF Competition
The newly launched ETF will have to face competition from European focused ETFs like SPDR EURO STOXX 50 (FEZ). FEZ is one of the most popular ETFs in the space with an asset base of $5.3 billion and average trading volume of 1.9 million shares. The fund also tracks the EURO STOXX 50 Index and charges 29 basis points as fees.
iShares MSCI EMU ETF (EZU) is another popular fund in the space with an asset base of $8.7 billion and trades with good volume of more than 5.4 million shares. The fund tracks the MSCI EMU Index, which measures the performance of equities from countries within the European Monetary Union. The fund charges 47 basis points as fees (see all European Equity ETF here).
Thus the newly launched fund is quite cheaper than the most popular ETFs in the space. It charges much less than the average expense ratio (0.49%) within the European equities space, making it one of the least expensive options.
The cheaper fees might work in favor of the newly launched ETF helping it to garner more assets. If that becomes the case, we might see more additions to the ETF lineup from the issuer in the U.S. on the horizon.
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