The world of investing is ever-evolving, and one CIO has identified a lesser-known ETF that could offer a significant advantage over the broader market. This CIO, overseeing $40 billion, is Will McGough, and he's making a compelling case for the S&P Global 100 ETF (IOO).
McGough argues that the S&P 500, a long-standing benchmark for investors, might be outdated. While it provides exposure to large-cap US stocks, it fails to capture the upside of top international companies, particularly those at the forefront of the AI trade. The S&P Global 100, on the other hand, offers a more comprehensive approach by tracking a selection of the world's top stocks by market cap.
One of the key strengths of IOO is its diverse holdings. It has approximately 80% exposure to US stocks but also includes significant non-US AI holdings. These include Samsung Electronics, a South Korean memory chip maker; ASML, a Dutch lithography machine producer; SAP, a German software company; and Schneider Electric, a French energy firm contributing to data center infrastructure. Other prominent AI-related international firms like Sony, Siemens, and Tencent are also part of the fund.
McGough emphasizes that today's global economy is highly interconnected, especially for companies tied to the AI boom. He argues that the traditional regional and factor buckets for stocks are becoming less relevant. IOO, he believes, cuts through these predetermined definitions, focusing on the larger companies by market cap that are in dominant positions to grow earnings faster. This approach challenges the conventional growth vs. value debate.
However, IOO's heavy tilt towards the tech sector (45% weighting) is a concern for some investors. It's more biased than the S&P 500's sector weighting. Yet, McGough remains confident in the AI trade's longevity, citing rising capex and data center buildout. He suggests that being out of the AI trade could lead to underperformance, making exposure to this theme a natural byproduct of owning the world's largest companies.
Despite its advantages, IOO is a smaller fund with around $8 billion in assets under management, compared to the massive S&P 500 ETFs. It charges a modest annual expense ratio of 0.04%. Interestingly, IOO is missing some notable AI-related names like Taiwan Semiconductor and SK Hynix.
In summary, McGough's CIO perspective highlights the potential of IOO as a diversified ETF that captures the global AI trade. While it has its limitations, the fund's approach to investing in dominant companies by market cap offers a unique and compelling strategy in today's interconnected markets.
