Pick of the Week - iShares S&P Global 100 (IOO)

February 6, 2010 9:50 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Expense Ratio: 0.40%
Average Bid Ask Ratio: 0.12%
Tracking Error: 0.49%
Concentration Risk: 9.30%
Capital Gains Dist. %: 0.00%

Rationale and Overview:
The S&P Global 100 index is a basket of the world’s largest 100 companies. Given the sharp pullback in global markets this week, the time may be right to begin or increase a position for a number of reasons.

While the broader market may be trading in the high teen price to earning ratios,
many megacaps are trading at 11.0x-13.0x EPS. In addition, a number of megacaps
offer very healthy dividends. A good example is Kraft Foods (KFT) that in addition to
its strong brands and balance sheet is acquiring Cadbury plc (CBY), a strategic move
that will expand KFT’s product offerings and global reach. More importantly, KFT
offers a yield of 4.2% and an earnings yield over 7%. Another example is
GlaxoSmithKline plc (GSK), whose stock is valued at 13.0x earnings and yields 5%.
Investors in the IOO basket of companies have the chance for significant capital
appreciation with limited downside risks, particularly in an environment that may
favor consumer staples. These multinational companies also are growing fast in
emerging markets. About 32% of P&G’s top line revenue is coming from emerging
markets and this is doubling every four years. Unilever has 49% of revenue from
emerging markets

Another option is the Chartwell Global 30 that I have managed since 2005 as an
alternative to the Dow Jones Industrial benchmark. It is a basket of 30 multinationals
equally weighted with about 50% headquartered in the U.S and the rest spread out all
over the world. Since inception on May 5, 2005 it is up 46.35% (excluding fees) versus
just 1.97% for the Dow and 14.7% for the S&P Global 100. For more information,
please call me direct at 719.264.1503.

Catalyst:
The catalysts are that mega multinationals are trading at relatively low
valuations with nice dividends, strong balance sheets, great management teams and
are also growing top line revenue in emerging markets at a brisk pace.

Tip:
Think about looking into the S&P 100 basket of companies and picking your
favorite names to layer on top of IOO. I call this strategy ETF plus.

Risk Factor:
The risk factor for IOO is medium and IOO makes a great core holding.

Delfeld is head of the financial publisher Chartwell Partners, writes the “Global Gambits” column for Forbes Asia and is the author of four books on global investing. He was a vice president with Robert W. Baird & Company opening markets in Tokyo, Sydney and Hong Kong. Carl served as an international economist with the Joint Economic Committee and as a consultant on emerging markets with the U.S. Treasury before representing the United States on the Executive Board of Directors of the Asian Development Bank in Manila during the administration of George H. W. Bush. He earned a Masters Degree from The Fletcher School of Law & Diplomacy followed by study at Keio University as a Japanese Government scholar.

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