Capturing the in vogue ‘mega-forces’ in a one-stop ETF shop

While the iShares Global 100 ETF (IOO) may seem like just a basket of the world’s top 100 stocks packaged in an efficient exchange traded fund (ETF) structure, there is more than meets the eye to this award-winning investment vehicle.

Claiming the top spot in the ETF Product category at the Financial Newswire/SQM Research’s Fund Manager of the Year Awards 2024, the BlackRock-powered fund has an undeniably strong tilt to the ‘in vogue’ stocks of the moment like the biggest large cap tech-focused names or the ‘Magnificent Seven’.

But what sets it apart from a typical index fund is its underlying rules, offering investors a more diverse and unique taste of the world’s top 100 performing stocks – with a twist.

“The fund is slightly more concentrated than standard global index with 100 securities and the index is constructed using rules, not just on the size of the stocks but also on the revenue from different regions,” Stephen Ead, Head of Global Product Solutions for Australia and New Zealand at BlackRock, said.

“It’s also balanced from a sector perspective, giving investors exposure to every corner of the developed market economy.”

“This ETF, which tracks the S&P Global 100 Index, looks to take the global 100 largest stocks, and the companies must draw over 30 per cent of their revenue from outside their home country, have revenue exposures across America, Europe and APAC. They also must have a large market cap of over US$5 billion,” Chantal Giles, Head of Wealth at BlackRock Australasia, agreed.

“It’s accessing those stocks that are having huge impact globally and are transforming the way economies operate. They lean into several mega-trends such as globalisation, technology and the ageing population.”

The fund’s performance track record proves it capitalises on the mega-trends of the moment, delivering annualised returns of 15.7 per cent in the ten years to 31st July and recording over $3.8 billion in assets under management (AUM). And while those mega-trends may be the Magnificent Seven and artificial intelligence (AI) right now, Giles told Financial Newswire IOO is ready for whatever global transformer comes next.

“It has consistently captured those global stocks that are driving the transformations now, and that’s the Magnificent Seven. But if you look at the historic performance of the fund, it’s always been capturing those trends and stocks that are having that large impact,” she said.

“It’s consistent with the current themes of AI and technology, but it will also capture the next generation of top 100 stocks that are going to benefit.

“We see the AI and tech theme as long-term and while there can be specific niche products that capture this theme, IOO captures the broader themes that are changing our future. We think AI is a long-term mega-force and the ticker will capture the next generation of companies to benefit from that as well.”

iShares ETFs found their footing in a sparse Australian ETF market with IOO listing in 2007, following in the footsteps of its long-running US counterpart that’s celebrating two-and-a-half decades in market this year.

IOO wins the ETF Product award at a time where everyone from market commentators to investors are raising concerns over history repeating itself with an ‘AI bubble’. Ead has put those worries to rest, as IOO’s ETF structure and underlying rules provide more diversifying power.

“With insights from our BlackRock Investment Institute, we’ve seen pockets of volatility in the Northern Hemisphere and Japan. We remain overweight in US stocks and in AI as a theme because it is something that’s changing the world,” he said.

“We do have exposure to the Magnificent Seven in the fund; its top three stocks are Apple, Microsoft and Nvidia. These are truly global companies that have excelled because of that AI theme.

“But when you look at the fund, it is broader than just the Magnificent Seven. If you think about a U.S. broad benchmark exposure, you’d be picking up those seven stocks as a cap weight and they can be quite a large index holding. IOO is broader because of its constraints around being a global company and the revenue from what’s happening globally.

“The fund was performing before this theme (Magnificent Seven) took hold. Because of its 100 stocks and its diversification, we believe the fund will continue to capture the next winners.”

IOO has also been touted as a strong building block for equity allocations in investor portfolios, also delivering benefits for advisers in its cost-effective structure.

“When you think about what sectors are available in the Australian economy, there isn’t really a lot of exposure to technology,” Ead said.

“The fund is a great way to get that technology exposure into your portfolio in a broad sense and not very concentrated to those few technology stocks.”

“Advisers building portfolios typically look to active management for these types of exposures. IOO allows them to gain access to a basket of the top 100 stocks at a significantly lower cost compared to that of active managers,” Giles said.