iShares Pacific ex Japan Equity Index: April 2021 Fund Update

Alexander Watkins | Tue 27 April 2021

The links in this article will take you to Hargreaves Lansdown’s main website for more information. Please be aware that if you wish to join any of the benefits in your company Plan you must return to this website to apply.

• BlackRock has been managing index portfolios since 1971
• The fund provides low-cost exposure to hundreds of companies across Asia and the Pacific
• It’s closely tracked the FTSE World Asia-Pacific ex-Japan Index since launch
• This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

Asia is home to some of the most dynamic economies in the world. In particular, emerging markets which have the potential to grow strongly over the long term, though they’re higher risk. This fund offers a low-cost way to invest in companies of all sizes, across a variety of industries and countries including Australia, Taiwan, South Korea and China.

An index tracker fund is one of the simplest ways to invest and can be a low-cost starting point for a portfolio aiming to deliver long term growth. We think this fund could be used to diversify a global portfolio or be a good addition to a portfolio of tracker funds.

Manager

Kieran Doyle is a Senior Portfolio Manager in BlackRock's Institutional Index Equity Team. He's been part of the team since 2004 and officially became the fund's manager in 2016, although in practice the entire team helps run the fund.

The group has investment managers and analysts based across the globe, helping drive more efficient management of their funds. We have conviction in their ability to provide simple and effective tracking options for investors.

Process

The fund aims to track its benchmark, the FTSE World Asia Pacific ex Japan Index by investing in every company in the index and in the same proportion. This is known as full replication.

Keeping costs low is a key part of the team’s strategy to track the index closely. The portfolio managers communicate with local teams across the Asia Pacific region to ensure trades are placed at the best price, keeping costs low.

The fund also has tracking error targets, which measure how closely it's tracking its benchmark. These are monitored by BlackRock on a daily and monthly basis to ensure the fund is closely following the index.

Approximately 4% of the fund invests in smaller companies. They have greater growth potential than their larger peers but can experience more extreme price movements. This can benefit the fund in the long term but adds risk.

The fund can lend some of its investments to others in exchange for a fee in a process known as stock lending. This helps to keep costs lower. Since BlackRock’s lending programme started in 1981, only three borrowers with active loans have defaulted. In each case, BlackRock was able to repurchase every security out on loan with collateral on hand and without any losses to their clients. Although stock lending is not without risk.

Culture

BlackRock is one of the largest asset managers in the world. The company was founded in 1988 by eight partners including current CEO Larry Fink and is known for both active and passive strategies across the world. The iShares brand represents BlackRock's family of index tracking and exchange-traded funds.

Having lots of resource and knowledge under its belt, BlackRock aims to drive further development in this part of the investment market. Being such a large player in the index tracking arena gives BlackRock considerable access to the marketplace, which can help reduce trading costs.

Employees at BlackRock are encouraged to hold shares in the company. The company is committed to broadening employee share ownership and offers an employee stock purchase plan to help achieve this goal. For passive funds, the managers are incentivised to track the index as closely as possible. We think this helps align fund managers’ interests with those of long-term investors.

Over recent years BlackRock has increased its drive towards stewardship and promoting ESG-based products. This involves direct dialogue with companies on governance issues that have a material impact on sustainable, long-term financial performance. While the iShares Pacific ex Japan Equity Index Fund isn't an ESG-specific fund, we think it’s positive that BlackRock as a group is taking an active approach to stewardship issues.

The team running this fund works closely with various equity and risk departments across the business. We believe this adds good support and challenge on how to run the fund effectively.

Cost

The fund has an ongoing annual fund charge of 0.13%. We believe this is an excellent charge when compared with other passive funds in this sector. This is also one of the lowest cost funds on the HL platform for passively tracking the Pacific ex Japan market. Our platform charge of up to 0.45% per annum also applies.

Performance

Since launch in August 2005, the iShares Pacific ex Japan Equity Index fund has tracked its index, the FTSE World Asia Pacific ex Japan, returning 349.0%* versus the benchmark’s 381.0%. Remember, past performance isn’t a guide to future returns. As is typical of index tracker funds, it’s fallen behind the benchmark over the long term because of the costs involved. However, this difference has been reduced due to the strategies used by the BlackRock team.

The FTSE World Asia Pacific ex Japan’s top 10 companies make up 33% of the total index. How these companies perform in the future will play a big part in the performance of the underlying index and fund. In particular, Taiwan Semiconductor Manufacturing and Samsung Electronics account for 10.5% and 7.2% of the fund respectively.

Given BlackRock's size, experience and expertise running index tracker funds, we expect the fund to continue to track the FTSE World Asia Pacific ex Japan well in future, though there are no guarantees.

A glance at the five-year performance table below shows in some years the fund has tracked the index closer than others. On occasion it has even ended up slightly ahead of the index due to the strategies used by the team, although this won't necessarily happen in future and isn’t an aim of the fund.

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2021.

More on iShares Pacific ex Japan Equity Index, including charges

iShares Pacific ex Japan Equity Index Key Investor Information