Going Global

01/07/2005 12:00 am EST


Carla Pasternak

Editor, The Income Investor

Carla Pasternak, editor of High Yield Investing, offers a Top Pick that combines a modest yield with upside potential from its exposure to large cap global equities. Here, she explains her bullishness on the S&P Global 100 exchange traded fund.

"Our top pick for 2005 is iShares S&P Global 100 Index (IOO ASE), an exchange traded fund that tracks S&P's index of the world's largest multi-national firms, such as GE, ExxonMobil, and Microsoft. If you believe, as I do, that large-cap stocks are the place to be in 2005, then this fund is for you. Companies come from about a dozen different nations, with the US, the UK, France, Switzerland, and Japan accounting for the major exposure. It carries a 65 cent annual dividend, which yields 1.7%, and a below par expense ratio of 0.4% allowing shareholders to keep a bigger bite of the income.

"Larger, more diversified firms typically weather a higher interest-rate environment since they derive revenues from many streams, some of which are not as interest-rate sensitive. We also like the fact that multi-nationals are well positioned to benefit from the weak US dollar. Large caps have been out of fashion for the past several years, and as a result, the fund right now sports an attractive p/e ratio of 15 times the last year of earnings, well below the S&P 500's 19 times earnings. The fund is a relatively cheap and is an easy way to diversify an income portfolio while taking advantage of what may well prove to be a rotation into large cap stocks in the year ahead."

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