New ETFs On The Block: SPDR Euro STOXX Small Cap ETF (SMEZ)

Ulli Europe, Small Cap ETFs Contact

146026450Europe is expected to witness stronger credit flow in the real economy after the European Central Bank cut its key interest rates this month. Investors are optimistic EU countries will recover from the prolonged recession that started in 2008 and stave off deflation successfully after the ECB’s intervention.

As the business cycle improves, European equities, particularly small cap stocks, are expected to outperform other asset classes since they tend to be highly correlated to local economies.

State Street Global Advisers, the asset management arm behind the SPDR brand of exchange-traded funds, has unveiled a Europe-focused ETF that targets small companies across Europe. The newly launched SPDR Euro STOXX Small Cap ETF (SMEZ) tracks the Euro STOXX Small Index – a gauge consisting of small capitalization companies domiciled in countries within Europe that have adopted the euro as their currency (There are 28 countries in the European Union, but only 18 use the euro).

SMEZ is only the second European small cap-focused ETF to list in the US and will compete with the WisdomTree Europe SmallCap Dividend Fund (DFE).  However, DFE is more focused on UK, Sweden and Switzerland, none of which are euro zone nations, allocating almost half its assets to these countries.

The fund consisted of 99 companies as of June 19, 2014, making it fairly well diversified across sectors. The underlying index has historically included firms from Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands and Spain.

The top 10 holdings corner about 17 percent of total assets with top holding Peugeot SA allocated just 2.11 percent. Deutsche Wohnen AG, Hugo Boss AG, Eiffage SA and Bankinter SA are some of the other top holdings of the fund.

SMEZ is tilted toward the bigger economies in Europe with Germany (24.51 percent), France (24.11 percent) and Italy (11.63) getting double-digit allocations. Sector-wise, financials, consumer discretionary and industrials get the maximum exposure, aggregating more than two-thirds of total assets.

The fund charges 45 basis points as gross annual fees.

Disclosure: No holdings

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