ACWX - ACWX: Low-Yielding Widely Diversified Portfolio Of Large-Cap Ex-U.S. Stocks

2023-04-21 08:19:19 ET

Summary

• ACWX enables growth-seeking investors gain exposure to growth-oriented stocks while enjoying double-digit average total returns over the long run.
• ACWX provides exposure to dividend paying large-cap stocks with quality and growth characteristics, belonging to some targeted international markets.
• Despite interest rate hikes hitting growth stocks hard, with yield being consistently low, total returns for ACWX have been strong over the long run.
• ACWX’s stock selection has been excellent, and most of its top investments have been consistent in their growth, sometimes surpassing the S&P 500.

~ by Snehasish Chaudhuri, MBA (Finance)

iShares MSCI ACWI ex U.S. ETF ( ACWX ) is an exchange traded fund that invests mostly in large-cap stocks of diversified sectors in the global ex-US region. Almost 60 percent of its assets under management are invested in 7 of the most developed equity markets outside the United States. These countries are Japan, the United Kingdom, China, France, Canada, Switzerland and Germany. The fund offers semi-annual pay-outs and generates a decent yield in between 2.5 percent and 3.5 percent. But its total return is strong enough during the long run. In between 2017 and 2021, annual average total return was almost 10.5 percent. The fund is currently trading at $50, at a negligible discount of 0.03 percent from its NAV. The fund also has a low expense ratio.

ACWX's Significantly Large Asset Base Has Low Turnover and Expense Ratio Launched by BlackRock, Inc. on March 26, 2008, iShares MSCI ACWI ex U.S. ETF is managed by BlackRock Fund Advisors. The fund has a significantly large asset under management of $4.5 billion and has a relatively low expense ratio of 0.32 percent, considering at present its portfolio is composed of more than 1900 stocks. It seeks to track the performance of the MSCI ACWI ex USA Index, which is a free float-adjusted market capitalization-weighted index that has been designed to measure the combined equity market performance of developed and emerging markets, excluding the United States. ACWX uses representative sampling techniques to create its portfolio from the benchmark index. The fund is passively managed with a very low turnover of 8 percent.

ACWX's Investments in the Financial Sector is Mostly in Renowned Banks

iShares MSCI ACWI ex U.S. ETF invested more than 20 percent of its assets in stocks from the financial sector, and its top 20 holdings in this sector included mostly renowned global banks. This list included HSBC Holdings plc ( HSBC ), Royal Bank of Canada ( RY ), AIA Group Limited ( OTCPK:AAIGF ), The Toronto-Dominion Bank ( TD ), Commonwealth Bank of Australia ( OTCPK:CBAUF ), UBS Group AG ( UBS ), BNP Paribas SA ( OTCQX:BNPQF ), Mitsubishi UFJ Financial Group, Inc. ( MUFG ), Banco Santander, S.A. ( SAN ), Bank of Montreal ( BMO ), China Construction Bank Corporation ( OTCPK:CICHY ), National Australia Bank Limited ( OTCPK:NAUBF ), ICICI Bank Limited ( IBN ), Sumitomo Mitsui Financial Group, Inc. ( SMFG ), The Bank of Nova Scotia ( BNS ), and Westpac Banking Corporation ( OTCPK:WEBNF ). AXA SA ( OTCQX:AXAHF ), Zurich Insurance Group AG ( OTCQX:ZFSVF ), Allianz SE ( OTCPK:ALIZF ) and Hong Kong Exchanges and Clearing Limited ( OTCPK:HKXCF ) complete the above list.

It's not that stocks of financial giants in international markets have always delivered strong price growth. These stocks are targeted by investors for their high volumes and consistency in dividend payments. However, I found the top 20 investments of iShares MSCI ACWI ex U.S. ETF in the financial sector have delivered strong enough growth during the past six months. Barring NAUBF, all other stocks delivered positive price growth. SMFG grew by 56.5 percent. SAN, BNPQF, MUFG, AXAHF, ALIZF, HKXCF, HSBC, AAIGF and UBS - all these stocks recorded a price growth between 25 to 50 percent. The financial sector might be gaining from a stabilized interest rate at a very higher than average level.

ACWX Invested in Large-Cap ICT and Technology focused Industrial Giants

iShares MSCI ACWI ex U.S. ETF invested another 30 percent of its assets in equities of the industrial sector and information & communication technology (ICT) sector. Top 20 investments from these two sectors included Taiwan Semiconductor Manufacturing Company Limited ( TSM ), Tencent Holdings Limited ( OTCPK:TCEHY ), Infosys Limited ( INFY ), ASML Holding N.V. ( ASML ), Samsung Electronics Co., Ltd. ( OTCPK:SSNLF ), SAP SE ( SAP ), Siemens Energy AG ( OTCPK:SMEGF ), Schneider Electric S.E. ( OTCPK:SBGSF ), Keyence Corporation ( OTCPK:KYCCF ), Airbus SE ( OTCPK:EADSF ), Deutsche Telekom AG ( OTCQX:DTEGY ), Canadian Pacific Kansas City Limited ( CP ), Canadian National Railway Company ( CNI ), Vinci SA ( OTCPK:VCISF ), RELX PLC ( RELX ), ABB Ltd ( ABB ), Hitachi, Ltd. ( OTCPK:HTHIF ), Safran SA ( OTCPK:SAFRF ), Infineon Technologies AG ( OTCQX:IFNNF ) and KDDI Corporation ( OTCPK:KDDIF ).

This group of stocks are some of the best performing stocks worldwide. During the past five years, 13 out of these 20 stocks generated a price growth in excess of 40 percent. These stocks are HTHIF, ASML, CP, TSM, SBGSF, INFY, CNI, KYCCF, RELX, ABB, IFNNF, DTEGY and SAFRF. Only three stocks (SMEGF, TCEHY and SSNLF) failed to generate positive price growth. During the past six months, these stocks have delivered enormous price growth. Barring INFY, all other stocks grew in excess of 8 percent. Again the price of 16 out of these 20 stocks grew in excess of 30 percent. INFY is going through a rough patch, and its stock has suffered due to various factors such as constant currency growth, declining margins, unplanned ramp-down in projects across business verticals and SVB collapse. Good thing is that these factors failed to impact the overall ICT and industrial portfolio of iShares MSCI ACWI ex U.S. ETF.

ACWX invested a small Proportion of its AUM in a large number of Giant-Caps

iShares MSCI ACWI ex U.S. ETF also made significant investments in other sectors included pharmaceutical giants Novo Nordisk A/S ( NVO ), AstraZeneca PLC ( AZN ), Roche Holding AG ( OTCQX:RHHBF ), Novartis AG ( NVS ), CSL Limited ( OTCPK:CSLLY ) and Sanofi ( SNY ); some of the world's largest energy and materials producers Shell Plc ( SHEL ), BHP Group Limited ( BHP ), BP p.l.c. ( BP ) Enbridge Inc. ( ENB ), TotalEnergies SE ( TTE ), and Rio Tinto Group ( RIO ); and companies operating in consumer staples and consumer discretionary such as Toyota Motor Corporation ( TM ), Alibaba Group Holding Limited ( BABA ), Unilever PLC ( UL ), Sony Group Corporation ( SONY ), Diageo plc ( DEO ), Compagnie Financière Richemont SA ( OTCPK:CFRHF ), Meituan ( OTCPK:MPNGF ) and Nestle SA ( OTCPK:NSRGF ). These stocks are large-caps, and some of the most recognised global brands.

The similar trend is visible here, too. 10 out of these 20 stocks - NVO, MPNGF, AZN, SONY, CFRHF, NSRGF, CSLLY, RHHBF, BHP, SNY - registered price growth in excess of 40 percent during the past five years. Barring BP, SHEL, BABA - all other stocks registered positive price growth. During the past six months, barring ENB, TM, MPNGF and RHHBF, all other stocks grew in excess of 13.5 percent. This is an exceptional performance, considering the fact that S&P 500 registered a lower growth than this. ACWX's total return during the past six months stood at 24.23 percent, in comparison to 13.42 percent of S&P. It explains the superiority of stocks selected by iShares MSCI ACWI ex U.S. ETF.

Investment Thesis

iShares MSCI ACWI ex U.S. ETF provides exposure to dividend growing companies with quality and growth characteristics, belonging to some targeted developed international and emerging markets. It pays semi-annual distribution and generates a low but consistent yield. According to me, the biggest attraction of this fund is its annual average total return, which stood high over the long run, as well as short run. Despite interest rate hikes have hit growth stocks hard, total returns for this fund have consistently been strong.

During the past six months, iShares MSCI ACWI ex U.S. ETF delivered returns higher than S&P 500. Its stock selection has been excellent so far, and most of its top investments have been consistent in their growth. An extremely low turnover ratio also suggests continuity in its holdings. As most international markets are moving in the upward direction, the future performances probably will get even better. In my opinion, this fund fails to meet the requirements of income-seeking investors, due to its lower-than-average yield. However, ACWX enables growth-seeking investors to gain exposure to growth-oriented stocks while enjoying almost double-digit average total returns over the long run.

For further details see: