Solid, But Not Spectacular For This Mega-Cap ETF

In a year which investors are favoring low volatility strategies, an exchange traded fund chock of large- and mega-caps would appear to be a logical destination. That theme should bode well for the iShares Global 100 ETF IOO.

By the standards of the exchange traded funds industry, the iShares Global 100 ETF is almost ancient, having debuted in late 2000. The $1.6 billion ETF holds 100 of the largest developed markets companies, sort of like an S&P 100 fund with a global spin. IOO's top 10 holdings include familiar behemoths such as Apple Inc. AAPL, Exxon Mobil Corporation XOM and Microsoft Corporation MSFT.

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The average market capitalization of IOO's 102 holdings is $140 billion, meaning its roster, on average, is far heftier than that of the S&P 500. However, volatility trends show similarities.

Volatile But Better

"IOO has exhibited similar levels of volatility to the S&P Global 1200 Index (a broader index composed of 1,200 of the largest global firms) during the trailing 15-, 10-, and five-year periods. However, the S&P Global 1200 Index has outperformed over each of these periods, thanks to its broader portfolio, which includes mega-cap and large-cap firms, and a small allocation to emerging-markets stocks. Investors may want to consider global-equity funds with a broader portfolio than IOO. In addition, many of the other cap-weighted, global-equity ETF options are cheaper than IOO, which charges an annual expense ratio of 0.40%," according to Morningstar.

Exposure

As its name implies, IOO is a global ETF, but its geographic allocations are far from exotic or risky. U.S. stocks account for over 60 percent of the ETF's weight while the U.K. and Switzerland combine for just over 17 percent. The only emerging markets exposure in IOO is a 1.55 percent weight to low beta South Korea.

Technology is IOO's largest sector weight at 21.9 percent, though the ETF is underweight financial services and consumer discretionary names relative to the S&P 500. Those sectors combine for 21.5 percent of IOO's weight compared to 28.3 percent of the S&P 500.

"The fund charges an annual expense ratio of 0.40%, which is high for a fund that holds 100 very liquid stocks. During the past three years, the fund outperformed its benchmark by 14 basis points annualized. This is mostly attributable to the fact that the fund's benchmark incorporates aggressive foreign tax-withholding assumptions. In practice, the fund has had lower foreign tax withholding relative to the estimates incorporated in its benchmark," adds Morningstar.