MMS ETF tracks the UCIT Small Cap Europe Index which targets Eurozone companies with a market capitalisation of between €200 and 1500bn, therefore companies that are ultimately more midsize rather than small.
The index tracked by the ETF includes 467 companies with broad sector and geographic diversification, making it highly diversified. Specific risk is low, as the top 10 holdings represent approximately 10% of the Fund's or approximately 1% for the most important line, including iconic growth stocks such as Teleperformance, Wirecard, Orpea or MTU.
The large economies (Germany, France and Italy) represent 57% of the selection, leaving a significant part for the Nordic economies such as Finland (6.4%) or Benelux.
The ETF expenses are 0.4%, and the replication method is indirect (via swaps), with a reasonable amount of 333 M €. MMS is an opportunity to play eurozone growth with a risk that is similar or even lower to that of the benchmark (stoxx600) - because of the absence of large banks - a Dividend distribution policy and a much more growth profile. Indeed, the sectors considered defensive - telecommunications, consumer staples, utilities and energy represent only 14% of the MSCI Small caps Index, while growth sectors (technology/Hardware, discretionary cons. STAP, health) represent about 1/3 of the Index.
It is also noted that unlike the Stoxx 600, the United Kingdom is not part of the selection ; MMS is therefore focused only on continental Europe and therefore there is no currency problem. We believe the eurozone is interesting over the medium term as the economic recovery is confirmed (1.6% in 2017e), supported by low interest rates and a historically low cost of energy, while the political cycle is almost complete. In the short term, valuations are strechted, and a temporary rotation towards value stocks cannot be ruled out, as it was the case in autumn 2016. However, the long-term potential for growth and MMS stocks seems to us to be an excellent risk/reward ratio for a long-term perspective, with a more favourable positioning than the Stoxx600.
In 2017, the index rose sharply (+ 16.8% YTD) and significantly outperformed the STOXX 600(+ 9.8%) and the Eurostoxx50 (+ 8.2%).
