I think one of the leading ASX-listed exchange-traded funds (ETFs) is the iShares Global 100 ETF (ASX: IOO).
Regular readers may already know that I'm a big fan of international ETFs, which can provide diversification with strong holdings at an attractive management cost.
The Australian share market is heavily concentrated on two sectors, with around half of the S&P/ASX 200 Index (ASX: XJO) weighted to ASX bank and mining shares. I think the IOO ETF could be a particularly good move for Aussies who don't have much international share exposure.
The iShares Global 100 ETF invests in 100 of the largest global stocks from both developed and emerging markets.
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Diversification and holdings
It's invested in all of the large US tech giants that are now part of our lives in various ways, including Microsoft, Nvidia, Apple, Amazon.com and Alphabet.
It also owns names such as Proctor & Gamble, Mastercard, Tencent, Samsung, Walmart, LVMH, McDonald's, Caterpillar, HSBC and many more.
These holdings are some of the world's most effective operators in their fields. Because of their excellent economic moats, it's very hard for smaller challengers to hurt these industry giants.
What I particularly like about the IOO ETF is its significant exposure to technology, with a 43% weighting. While banks and miners are typically exposed to the same operational risks as their peers, US tech shares are much more diverse and have global earnings bases. Thanks to the intangible nature of many of their services, tech companies can achieve strong profit margins and grow revenue quickly.
In terms of the other sectors, five industries have an allocation of more than 5% inside the IOO ETF: healthcare (10.5%), consumer discretionary (9.9%), financials (8.7%), communication (8.4%), and consumer staples (7.5%).
While more than three-quarters of the portfolio is listed in the US, the underlying earnings are more evenly spread worldwide. For example, consider all the different countries in which Apple smartphones are sold.
Excellent returns
We shouldn't rely upon past performance as an indicator of future returns, but I believe the underlying quality of the IOO ETF's holdings can help long-term returns continue to be compelling.
According to fund provider Blackrock, the IOO ETF has delivered an average return per annum of 14.95% over the decade to 31 May 2024. If someone had invested $1,000 a decade ago, they would have around $4,000 now.
Many of these companies generate strong profits and a pleasing return on equity (ROE), so further profit re-investment can help them grow even more in the future.
Investors often like to value a business based on how much profit they're making, so rising earnings should translate into higher valuations over time.
Reasonable fee
It's not the cheapest ASX ETF out there. The IOO ETF has an annual management fee of 0.40%.
I acknowledge other ETFs are cheaper, such as the Vanguard MSCI Index International Shares ETF (ASX: VGS) and the Vanguard US Total Market Shares Index (ASX: VTS).
However, the IOO ETF allocates more to the strongest businesses than the VGS ETF and has more global diversification than the VTS ETF.
I think this ASX ETF can provide a lot of elements that some Aussie investors may be missing in their portfolios.
