Young & Invested: Why we just downgraded this ETF you might own

Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.

This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.

Edition 67

If you’ve been investing for more than five minutes, there’s a good chance you own (or have thought about owning) some of the heavy hitters among ASX ETFs. The table below shows some of the most popular funds that show up in investor portfolios.

This year, our research team has made the decision to change the way we rate funds, which has shifted our view some of these widely held ETFs. Most notably, popular pick for international exposure, iShares Global 100 ETF IOO, has been downgraded from a Bronze to Neutral Medalist Rating. Nothing inside the fund has shifted in a way that would justify a downgrade on its own, but our change in methodology has altered how we believe IOO stacks up against its peers.

So, today I’m going to walk through the iShares Global 100 ETF, why it’s so popular and how a renewed outlook with an emphasis on fees now ascribes it a Neutral rating.

iShares Global 100 ETF (ASX: IOO)

Investment Management Fee: 0.40%
Morningstar Category: Australia Fund Equity World Large Blend
Morningstar Category Index: MSCI World Ex Australia

A quick breakdown

IOO ETF seeks to track the S&P Global 100 Index which comprises around 100 stocks from the S&P Global 1200 Index. By design, the index holds some of the largest global corporations, which naturally gives the portfolio a mega and large-cap tilt.

The share of tech stocks in global equities has intensified over the years and as a result, tech accounts for 46% of the portfolio, compared to the category index at around 29%. This meaningful overweight of tech is something investors looking to achieve broad-based global exposure should keep in mind given the fund’s already narrow composition.

Unsurprisingly, the limitation to a smaller number of stocks in the portfolio also results in higher holdings concentration compared with broader global equity indexes, with the top 10 holdings accounting for around 60% of the portfolio.

Strong performance drives interest

One of the primary reasons IOO continues to attract flocks of investors is its outstanding performance since inception, which has mostly been driven by the outperformance of tech mega-caps.

Most notably, IOO outperformed its benchmark index (MSCI World ex Australia) across all calendar years from 2016 to 2025. While this is an incredibly impressive winning streak, continued dominance relies on backing a narrow set of drivers indefinitely.

So why the downgrade?

What a neutral rating means

The ETF universe is expanding quickly and investors now face the prospect of forming a portfolio from hundreds of products. It’s not exactly a simple decision‑making environment, which is why having a consistent framework to assess and compare funds becomes crucial.

The Morningstar Medalist Rating is a forward‑looking assessment of how likely a fund is to outperform its category benchmark over a full market cycle. Funds can receive Gold, Silver, Bronze, Neutral, or Negative ratings.

Gold, Silver and Bronze mean that we expect the fund to outperform its category benchmark. Neutral means the odds are roughly balanced and Negative means we believe the fund has meaningful obstacles to delivering competitive long‑term returns.

Historically, the Medalist Rating has been built on the three core pillars of people, process and parent. Those pillars reflect fundamental drivers of long‑term performance. Our analysts assess each pillar and combine those assessments with the fund’s price and its likelihood of outperforming its category benchmark.

As of April this year, our methodology has been simplified with one of the key enhancements being the introduction of a price score. This is a continuous score from -2.5 (most expensive) to +2.5 (cheapest), showing whether a fund’s fee structure is working in your favour or eroding your long-term returns by feeding into our overall rating as below.

Why we’re neutral

Fees carry significant weight in our fund ratings because they remain one of the most reliable predictors of future performance. Understandably, it’s tempting to look at a fund that has historically outperformed despite a higher fee and assume the fee doesn’t matter. However, the evidence largely doesn’t support that view. Data has shown that higher-fee funds that have been performing well rarely maintain that performance momentum over the long term.

As the time horizon increases beyond five years, past performance becomes less important in determining a fund’s category-relative future performance. Beyond that, low fees, a sound investment process, solid managers and a fund’s category are key.

IOO’s total cost ratio (prospective) is 0.4% per year. That places it in the second-cheapest quintile of the Morningstar Australia Fund Equity World Large Blend Category where the median fee is 0.85% per year.

Importantly, although the fund is cheaper than competing actively managed products, the fee is somewhat higher than those of some other passive offerings within the category. Thus, we ascribe IOO a Price Score of 1.34, which reflects its relative price positioning within the category. The price score carries more weight for passive funds (40%) like IOO, given that cost is a large driver of outcomes in index-tracking strategies.

Overall, we believe that the fund continues to be a credible choice, though investors should be mindful of the diversification compromise that comes with its focused composition.

Concluding thoughts

Our analysts think iShares Global 100 ETF remains a decent option for exposure to large, renowned companies across the globe. But it does represent a concentrated, tech-heavy opportunity set that isn’t the cheapest passive option relative to peers. While these characteristics are worth noting, they do not imply a fund is uninvestable.

Importantly, if you own IOO, there is no need to take any dramatic measures post-downgrade. You don’t need to sell or replace it, nor assume you’ve made a mistake. Long-term portfolios are built with the purpose of compounding steadily, rather than constantly rotating in and out of positions. Frequent turnover in your portfolio can trigger transaction costs, capital gains tax, and unnecessary churn.

A Neutral rating is not an explicit call to action, even if it comes in the form of a downgrade. At its simplest, it reflects our view on a fund’s prospects, relative to its category. If IOO plays a role in your strategy and you understand what that role is, a rating downgrade doesn’t immediately invalidate that. It just gives you more information to consider. In an ever‑expanding ETF universe, ratings can be useful tools in helping you understand what you already own, rather than telling you what to do.