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iShares Core FTSE 100 ETF: May 2022 update

In this update, Passive Investment Analyst Alex Watkins shares our analysis on the manager, process, culture, ESG Integration, cost and performance of the iShares Core FTSE 100 Exchange Traded Fund (ETF).

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • BlackRock, which is responsible for iShares ETFs, has managed index portfolios since 1971
  • This ETF aims to track the performance of the largest 100 companies in the UK
  • One of the lowest-cost ETFs for tracking this benchmark on our platform

How it fits in a portfolio

An ETF is a basket of investments that often includes company shares or bonds. They tend to track the performance of an index such as the FTSE 100 and trade on stock exchanges, like shares. This means their price fluctuates throughout the day.

Find out more about ETFs

The iShares Core FTSE 100 ETF invests in the 100 largest companies in the UK. While the FTSE 100 is a UK index, many of the companies also earn money overseas. Investors will therefore be indirectly investing into foreign economies as well as the UK.

A tracker fund is one of the simplest ways to invest and can be a low-cost starting point for an investment portfolio aiming to deliver long-term growth. ETFs that focus on the UK’s largest companies could be used to diversify a long-term global investment portfolio, or one focused on smaller companies or other investments such as bonds.

Manager

Dharma Laloobhai is the Head of EMEA ETF Portfolio Engineering in BlackRock’s ETF and Index Investments Group. She provides oversight for teams based in London and Munich who manage developed and emerging market iShares equity ETFs.

Each ETF at BlackRock has a primary and secondary manager, though in practice a broader team helps to manage each fund. Within the team, portfolio managers rotate their responsibilities, which gives them experience across different regions like the UK, the US and Europe. This ensures continuity in the way the ETFs are managed, even if there are team changes. As a collective team, BlackRock has run this ETF for just over 22 years.

BlackRock also has other teams that trade shares and bonds based across the world. The teams function in different time zones, which means they have access to timely information, and can provide input on market trends and corporate actions. Their global approach helps drive efficient management of their funds, while providing simple and effective tracking options for investors.

Process

This ETF aims to track the performance of the UK’s largest 100 companies, as measured by the FTSE 100 index. It does this by investing in every company, and in proportion with each company’s index weight. This is known as full replication, which could help the ETF track the index closely.

In any index tracker fund, taxes, dealing commissions and the cost of running the fund all drag on performance. To help keep these costs down, the team aim to make large investments in companies instead of lots of small transactions.

The ETF 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.

The ETF will lend some of its investments to third parties in exchange for a fee which can help offset some of the fund’s management charges, reducing costs. This is known as securities lending. However, this can also increase risk.

BlackRock provides an indemnity for funds that use securities lending to try to protect investors. Since the lending program started in 1981, only three borrowers with active loans have been unable to return the securities. In each case, BlackRock was able to repurchase every security with collateral on hand and without any losses to its clients.

Culture

BlackRock is currently the largest asset manager in the world, running $9.57trn in assets globally, as of Q1 2022. The company was founded 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 mutual funds and ETFs.

Employees are encouraged to hold shares in BlackRock, via a stock purchase plan so that they’re engaged with helping the company perform well and grow. For BlackRock index mutual funds and ETFs, the managers are incentivised to track the index as closely as possible. This could help align the company’s interests with its long-term investors.

As one of the world's largest asset managers, and with 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.

The team running this ETF 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.

ESG Integration

BlackRock was an early signatory to the Principles for Responsible Investing and has offered ESG-focused funds for several years, including through its range of passive products. However, it only made a company-wide commitment to ESG (Environmental, Social and Governance) issues in January 2020. Following that announcement, the company promised to expand its range of ESG-focused ETFs, screen some thermal coal companies out from its actively managed funds and require all fund managers to consider ESG risks. Overall, we feel BlackRock’s ESG integration is still a work in progress.

The firm has courted controversy in recent years for failing to put its significant weight behind shareholder resolutions aimed at tackling climate change. It responded by committing to greater transparency on its voting activity and providing rationales for key votes. The firm also outlines its work on voting and engagement in annual and quarterly Stewardship reports. BlackRock’s Investment Stewardship (BIS) Team aims to vote at 100% of meetings where it has the authority to do so, meaning they vote at around 16,000 meetings in 85 markets each year.

As an example, the team’s been engaging with Royal Dutch Shell for many years to encourage improvement in the firm’s corporate governance processes, including oversight of climate-related risks and sustainability disclosures. Last year, the team voted in favour of Shell’s energy transition strategy, which met their expectations that companies have clear policies and action plans to manage climate risks.

The iShares Core FTSE 100 ETF is a passive fund designed to track an index, so it doesn’t integrate ESG analysis or exclude companies deemed to be sin stocks, like those involved in tobacco or weapons.

Cost

This ETF has an ongoing annual fund charge of 0.07%. This is currently one of the lowest-cost ETFs for tracking the FTSE 100 on the HL platform. There are no charges from HL to hold ETFs within the HL Fund and Share Account. The annual charge to hold ETFs in the HL ISA or SIPP is 0.45% (capped at £45 in the ISA and £200 in the SIPP). Ensuring a passive fund has a low charge is an important part of tracking the underlying index closely.

As ETFs trade like shares, buys and sells are subject to the HL share dealing charges within any Hargreaves Lansdown account.

Performance

The iShares Core FTSE 100 ETF has done a good job tracking its benchmark, the FTSE 100 index, over the long term. In the last ten years the ETF has returned 89.95% versus the benchmark’s 92.69%*. As is typical of index tracker funds, it’s fallen behind the benchmark over the long term because of the costs involved. Past performance is not a guide to future returns.

The FTSE 100 index currently has large exposures to sectors such as financial services, industrial goods & services, healthcare and energy. Therefore, these sectors could currently have the biggest impact on the market’s performance, though the makeup of any index can change over time.

Over the last year, the FTSE 100 has returned 12.35% to the end of April 2022. UK Oil & gas companies in particular have performed well over the year. This is partly down to the ongoing effects of the Ukraine crisis which has led to a surge in global oil & gas prices.

Given BlackRock's size, experience and expertise running ETFs, the fund could continue to track the index well in future, though there are no guarantees on how it will perform. A glance at the five-year table below shows that in some years the fund has tracked its benchmark closer than others. Remember, past performance isn’t a guide to future returns.

Annual percentage growth

Apr 17 – Apr 18 Apr 18 – Apr 19 Apr 19 – Apr 20 Apr 20 – Apr 21 Apr 21 – Apr 22
iShares Core FTSE 100 UCITS ETF GBP 8.41% 3.03% -17.21% 22.00% 12.24%
FTSE 100 TR 8.51% 3.15% -17.14% 22.15% 12.35%

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2022.

Find out more about the iShares Core FTSE 100 ETF including charges

View iShares Core FTSE 100 ETF Key investor information

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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