The iShares S&P Global 100 Index Fund

This month’s Featured ETF of the Month is iShares S&P Global 100 Index Fund (IOO, $57.72 at close of market on May 12, 2010), which carries Standard & Poor’s highest ETF ranking of “Overweight.” Based on an evaluation of the underlying ETF holdings, Standard & Poor’s classifies IOO as an Equity-Global-Large Cap Core ETF security.

In selecting this month’s Featured ETF, S&P screened for equity ETFs that scored positively for performance analytics, risk considerations, and cost factors. Given the volatility in most equity markets throughout the world, the criteria also included a mandate for geographic diversity of holdings, with a preference for large-cap multinational stocks.

S&P thinks it is appropriate to put a global equity ETF like IOO into the strategic or core part of a portfolio that provides broad representation in major markets. Most of this security’s holdings are multinational companies. The security itself has total assets of $832 million and average trading volume near 150,000, as of May 7, 2010.

S&P is positive on IOO because the security has above-average yield of 2.8% and its holdings are made up of what S&P considers attractive companies that historically have strong cash flows to support dividend growth. Many of these multinational companies derive an increasing share of revenue and profits from fast growing economies in developing markets.

Like many of today’s equity ETFs, IOO is aimed at providing investment returns that are generally similar to those of the stocks in an equity index. In the case of IOO, BlackRock iShares says that this ETF is designed to track those stocks in the S&P Global 100 Index. This ETF has an inception date of December 5, 2000 and it has 13.9 million shares outstanding. The gross expense ratio for IOO is 0.40%.

As of May 7, 2010, no individual stock held in the ETF represented more than 5% of total holdings. Exxon Mobil (XOM), ranked “strong buy” by S&P Equity Research, is the largest holding with a 4.38% of the ETF’s total assets.

The top ten holdings are 27.38% of IOO’s total assets, and include three stocks with an S&P Equity Research ranking of “strong buy,” five stocks ranked “buy,” and two stocks ranked “hold.” The top five sectors held by the ETF are financials, consumer staples, energy, health care, and information technology, which collectively make up 70.42% of the ETF’s assets. The top five industries are integrated oil and gas, pharmaceuticals, diversified banks, industrial conglomerates, and diversified metals and mining, collectively representing 43.20% of the ETF’s assets.

As for risk considerations, S&P notes IOO benefits from above-average scores in the proprietary S&P Quality Rank, proprietary S&P Credit Rating, and standard deviation. (The S&P Quality Rank assesses the growth and stability of a company’s earnings and dividends over the past 10 years.) These three inputs more than offset a negative score in S&P Risk Assessment, which is a qualitative measure from S&P equity analyst’s view of a given company’s operational risk.

As for cost factors, IOO’s ranking in this category benefited from a favorable price to net asset value that more than offset neutral scores in both gross expense ratio and bid/ask spread.

In conclusion, IOO is one of approximately 125 equity ETFs on which S&P had an overall “overweight” ranking of May 7, 2010. S&P believes IOO has compelling characteristics as it relates to performance, risk and cost factors.

As with all investments, S&P believes that investors should look to make selections that are suitable for their objectives and risk profiles. To learn more about the S&P fund ranking methodology, click here.

Related Topics: Featured Fund Of The Month