URTH - URTH: Too Much U.S.

2023-11-29 04:19:55 ET

Summary

• iShares MSCI World ETF is heavily weighted towards US stocks, despite being a global fund.
• Top holdings include Apple, Microsoft, Amazon, Nvidia, and Alphabet.
• The ETF is predominantly invested in Information Technology, followed by Financials and Health Care sectors.

I've been on the global investing kick for several months here and maintain my belief that AI mania marks the blow-off on top of large-cap US dominance. If I'm right, and equities are destined to continue to do well, the iShares MSCI World ETF ( URTH ) could be a better equity proxy than a pure-play US-based fund.

The iShares MSCI World ETF seeks to track the investment outcomes of an index composed of developed market equities. The problem is despite its global tag, the ETF is heavily weighted towards U.S. stocks, which account for 70% of its holdings. So yes - it's global, but US dominated still. The fund was launched by BlackRock Inc. and is currently managed by BlackRock Fund Advisors.

Detailed Analysis of URTH Holdings

Further to the point that this is a US-heavy fund, the top holdings are all ones that should be familiar and include companies like:

• Apple Inc. (AAPL): Apple Inc. is a technology conglomerate with multinational reach, engaged in the creation, production, and distribution of consumer electronics, computer applications, and digital services. It ranks among the world's top companies in terms of market value.
• Microsoft Corp. (MSFT): Microsoft Corporation is a global technology firm that innovates, produces, licenses, provides support for, and sells computer software, consumer electronics, personal computers, and associated services.
• Amazon.com, Inc. (AMZN): Amazon is a global technology enterprise with a focus on e-commerce, cloud technologies, digital media streaming, and artificial intelligence, positioning it as one of the most valuable companies globally.
• NVIDIA Corp. (NVDA): Nvidia is an international technology corporation that engineers graphics processing units for the gaming and professional sectors, and system-on-a-chip units for the mobile and automotive industries.
• Alphabet Inc Class A (GOOG) (GOOGL): Alphabet Inc. is a multinational conglomerate that was established during a corporate reorganization of Google. It is best known for its subsidiary Google, a global technology company that offers a variety of Internet-related services and products.

Sector Composition and Weightings

URTH is heavily invested in a wide range of sectors, thereby offering a diversified portfolio. The ETF is predominantly skewed towards Information Technology, making up 23% of its holdings. No surprise given the majority is in US stocks. This is followed by Financials and Health Care, accounting for about 15% and 12% of its holdings respectively. Other sectors include Consumer Discretionary, Industrials, Communication, Consumer Staples, Energy, Materials, Utilities, Real Estate, and others.

Peer Comparison

When comparing the URTH with other similar ETFs, it's worth noting that URTH charges a higher expense ratio of 0.24%, compared to the 0.07% charged by the Vanguard Total World Stock Index Fund ETF Shares ( VT ). This is despite VT having a greater number of stock holdings and exposure to Emerging Markets. That emerging market skew in VT largely explains the relative underperformance against URTH.

Pros and Cons of Investing in URTH

Investing in URTH presents several advantages and drawbacks. On the upside, URTH offers exposure to a broad range of developed market companies worldwide. It also presents an opportunity for investors to diversify internationally and seek long-term growth in their portfolios.

On the downside, U.S. stocks dominate the ETF, and given that U.S. stocks are significantly more expensive than most of the rest of the world, URTH is likely to perform poorly as growth slows and profit margins decline. Furthermore, the fund's expense ratio is on the high side compared to many world ETFs.

Conclusion

In conclusion, while the iShares MSCI World ETF offers a good global proxy, it is still largely a U.S. fund. Given the current economic conditions and the high valuation of U.S. stocks, the ETF may not provide the returns investors might expect. Better than the US, but not as global as I'd prefer.

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