How do you like them Apples?

Back in 2000 Apple was a $US40bn company. It is now a $US750bn company sitting on $US194 billion cash. According to Interbrand, Apple is the world’s most valuable brand. What makes Apple even more compelling is its global strategy and reach. A few weeks ago, while announcing a 30% net profit increase and total revenue of $US58 billion, Apple revealed that revenue in China grew 71%, to $US16.8 billion.

Apple is the top of a list of stellar tech performers over the last decade that includes other multinationals such as Google, Microsoft, IBM and Cisco. The global leverage of these international tech companies means their share prices ought not to be as susceptible as they were in 2000.

Growth in tech is likely to continue due to:

1. Tech is now a social utility: Generation X, Y and millennials have grown up with technology. It has now become a social utility that they cannot live without, driving growing demand.
2. Leverage to emerging markets: Increasing consumer demand in emerging markets like China, as evidenced by Apple’s recent results, is a continuing source of growth.
3. Interest rates: Growth focussed tech companies, Apple (~$US194 billion), Google (~$US67 billion), Microsoft (~$US107 billion), Cisco (~$US54 billion) have large cash reserves and would benefit from higher rates. (Source: S&P Capital IQ, USA Today).

This all sounds promising. Traditionally however the problem for Australian investors is how to access these international opportunities. There is now a simple solution via a single trade on the ASX.

The Market Vectors MSCI World ex Australia ETF (ASX code: QUAL) has over 25% exposure to the highest quality international tech companies. QUAL is a portfolio of around 300 international companies including Apple, Google, Microsoft, IBM and Cisco. It tracks the MSCI World ex Australia Quality Index (QUAL Index) which only includes companies with:

1. high ROE;
2. low financial leverage; and
3. stable earnings growth.

According to MSCI, the world’s largest index provider, companies that have these attributes typically have durable business models and resilient earnings that are less correlated to the broader business cycle.

MSCI excludes companies that are not profitable.

At around the same time Apple was announcing its results, Twitter’s results were leaked to the market revealing another loss. Its share price fell 18%. Without a positive ROE, Twitter is excluded from QUAL Index.

QUAL also excludes companies that lack stable earnings growth like Yahoo!.

The chart below shows the returns of Yahoo! since 2000 against the returns of the tech companies that are included in QUAL’s top 10.

Source: Morningstar Direct. Past performance is not an indicator of future performance.

The table below shows the same information, but excludes Apple.

Source: Morningstar Direct. Past performance is not an indicator of future performance.

All the tech companies in QUAL’s top ten have outperformed Yahoo! since 2000.

QUAL has ~25% exposure to technology companies. This is overweight by 11% relative to the MSCI World ex Australia Index. The S&P/ASX 200 Index contains ~7% tech companies, none of which compare to those in QUAL based on MSCI’s three quality factors.

Source: Morningstar Direct. Past performance is not an indicator of future performance.

Only companies that demonstrate MSCI’s quality characteristics are included in the QUAL index. A complete list of holdings is here. The QUAL Index has delivered significant outperformance relative to the broader market over the long term.

For investors seeking exposure to the international tech sector, QUAL provides a simple one-trade solution on the ASX.

For more information please contact me or visit our website here.

Important Notice:This information is issued by Market Vectors Investments Limited ABN 22 146 596 116 AFSL 416755 as responsible entity (‘MVI’) of the Market Vectors MSCI World ex Australia Quality ETF (‘Fund’). MVI is a wholly owned subsidiary of Van Eck Associates Corporation based in New York, United States (‘Van Eck Global’).

This is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation nor needs (‘circumstances’). Before making an investment decision in relation to the Fund, you should read the product disclosure statement (‘PDS’) and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.marketvectors.com.au or by calling 1300 MV ETFs (1300 68 3837).

QUAL is indexed to a MSCI index. QUAL is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to QUAL or the Reference Index. The PDS contains a more detailed description of the limited relationship MSCI has with MVI and QUAL.

The Fund is subject to investment risk, including possible delays in repayment and loss of capital invested. QUAL’s exposure to foreign currency is unhedged. Past performance is not a reliable indicator of current or future performance. No member of the Van Eck Global group of companies guarantees the repayment of capital, the performance, or any particular rate of return from the Fund.

Market Vectors® and Van Eck® are registered trademarks of Van Eck Global.

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