Author: Aayushi Swami
IShares Core MSCI Total International Stock ETFs seek to track the investment result of an index composed of large, mid and small capitalization non US equities.
Approach
This fund earns a High Process Pillar rating for capturing the entire opportunity set available to its actively managed competitors in a cost-effective way. BlackRock’s portfolio managers track the MSCI ACWI ex USA Investable Market Index. This benchmark starts with all stocks listed outside of the United States and sorts them by their free-float-adjusted market cap. The final portfolio does not hold every stock in its benchmark index. Instead, the managers buy a representative sample of stocks to match index performance. They nearly fully replicate the large-cap segment and hold a portion of the smaller companies in the index. This reduces the need to trade smaller and less liquid names, which reduces transaction costs.
Portfolio
This fund captures the entire foreign-stock market. Its comprehensive portfolio effectively diversifies stock specific risk, with only 10% of assets in its 10 largest holdings. Sector weightings are comparable, with financials and industrial stocks collectively representing about one third of the portfolio. Country and regional allocations aren’t far off the category average, either. The fund does not hedge its currency risk, so its exposure to currencies like the euro, yen, and pound can add to its volatility. Stocks listed on emerging-markets exchanges account for a little more than 28% of this fund, while a typical competitor has a 10% stake.
People
Industry-leading technology and BlackRock’s global footprint support a strong team of portfolio managers, earning an Above Average People Pillar rating. Alan Mason is head of portfolio management for the Americas and helps manage this portfolio. Rachel Aguirre was promoted to iShares head of product engineering in early 2021 and no longer serves as a manager on this fund. This change should not disrupt the fund’s ability to track its bogy because it retains its three remaining managers and much of their workflow is automated.
Performance
(Source: Factsheet)
Top holdings of the fund (%)
About the fund
The fund tracks the MSCI ACWI ex USA Investable Market Index, which includes stocks of all sizes from foreign developed and emerging markets. It weighs them by market capitalization, an approach that benefits investors by capturing the market’s collective opinion of each stock’s value while keeping turnover low. Market-cap-weighting can be tough to beat because the market tends to do a good job valuing stocks over the long term. Its exceptional diversification mitigates the impact of holding the worst-performing names. It holds more than 4,300 stocks and has only 10% of assets in its 10 largest positions. The fund’s regional composition looks modestly different from the category average.
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis:
- Attractive long-term drivers in online gaming
- Strong core franchises in Madden NFL, FIFA, The Sims and Need for Speed
- New product release surprise on the upside including Apex Legends
- The growing popularity in Esports should benefit EA
- Mobile advertising presents significant opportunity (though not without execution risk)
- Solid free cash flow generation and strong balance sheet, the Company has ample room to support capital management initiatives (such as a share buyback)
Key Risks:
- New competition and new product release from existing competitors could impact EA’s growth rate.
- Key franchises or new product releases fail to attract gamers or meet investor growth expectations.
- Cloud gaming could be disruptive for incumbents.
- Adverse regulatory changes.
- Concentration of revenue / earnings to a small group of games.
- Disruption to mobile growth (e.g. growth in smart glasses displaces smartphones).
- Loss of content licensing agreements with owners (FIFA, NFL)
Key highlights:
- Electronic Arts Inc (EA) delivered the strongest 2Q in the history of EA, beating consensus estimates at both the top line ($1.83bn vs estimate of $1.75bn) and bottom line (EPS of $1.02 vs estimate of $0.56) driven by live services led by Apex Legends (reached $1.6bn in lifetime bookings) and FIFA Ultimate Team.
- The Company’s net bookings of $1.85bn beat management’s guidance by $126m
- Management remained positive on the launch of Battlefield 2042 (over 7.7 million players took part in the beta) noting that interest in Battlefield 2042 is higher than the interest the Company received heading into 2018’s Battlefield
- the acquisitions of Glu, Codemasters, Metalhead and Playdemic should help EA make mobile a major growth driver (important to sustain topline growth as console and PC engagement declines as the pandemic recedes), and strong digital mix for full game sales
- After a successful relationship between EA and soccer’s global governing body FIFA over multiple decades, it appears recent contract renewal discussions are not going well as the disagreement comes down to fees
- Net bookings of $7.625bn (vs $7.3bn previously) driven by ongoing strength from Apex and FIFA and just under $100m from six months of Playdemic, partially offset by pressure on some of mobile titles including product changes and IDFA impacts
- Management closed the acquisition of Playdemic, further strengthening the mobile native organization within EA, which management expects could be sharply focused on accelerating growth in portfolio of more than 15 top mobile live services as well as introducing new experiences that take powerful IP including Battlefield in the expanding mobile audience.
Company Description:
Electronic Arts (NASDAQ: EA) is a leading digital interactive entertainment company, with leading gaming brands globally. The Company develops and distributes content and services on mobiles, personal computers (PCs) and gaming consoles. Some of the Company’s key franchises Madden NFL, EA SPORTS FIFA, The Sims and Need for Speed. The Company’s portfolio of games includes fully owned original IP games and also licensed content. Apex Legends, Anthem, Battlefield, The Sims, EA SPORTS, Need for Speed, Dragon Age, and Plants vs. Zombies are trademarks of Electronic Arts Inc. John Madden, NFL and FIFA are the property of their respective owners and used with permission. According to EA data, the Company has greater than 300 million registered players around the globe.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
