iShares Pacific ex Japan Equity Index: March 2025 fund update

• BlackRock has been managing index portfolios since 1971

• This 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 features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The iShares Pacific ex Japan Equity Index fund invests in the Asia-Pacific region, home to some of the most dynamic economies in the world. This includes emerging markets which have the potential to grow strongly over the long term, though they’re higher risk. This fund invests in company shares of all sizes, across a variety of industries and countries including Australia, Taiwan, South Korea and Hong Kong.

An index 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. We think this fund could be used to diversify a global portfolio or could be a good addition to a portfolio of tracker funds.

Manager

Dharma Laloobhai is Co-Head of BlackRock’s EMEA Index Equity International Portfolio Management team. She’s responsible for fund managers based in London who manage developed and emerging market iShares equity index funds and ETFs.

Every equity index fund at BlackRock has a primary, secondary and tertiary manager, who each have the ability to run the fund, along with the wider team. The wider team is well-resourced and experienced in index investing.

BlackRock’s global approach allows them to work closely with their teams across the world, aiding more efficient management of their funds. We have positive conviction in BlackRock’s ability to provide simple and effective tracking options for investors.

Process

This 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 and helps to closely match the performance of the index.

The fund is currently made up of 619 companies with just over half of the fund invested in the technology and financial sectors. Taiwan, Australia and South Korea make up a large part of the fund, accounting for 33.4%, 28.9% and 16.6% respectively.

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

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 offset some of the costs of running the fund. Since BlackRock’s lending program 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. Even so, stock lending adds risk.

The fund 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 being run efficiently.

Culture

BlackRock is currently the largest asset manager in the world, running around $11.6trn of assets globally as of December 2024. The company was founded by eight partners including current CEO Larry Fink and is known for both active and passive strategies. Employees at BlackRock are encouraged to hold shares in the company so that they are engaged with helping the company perform well and grow. The iShares brand represents BlackRock's family of index tracking and exchange-traded funds.

As the world's largest asset manager, and with lots of resource and knowledge under its belt, BlackRock benefits from unique access to the marketplace, which can help reduce trading costs. BlackRock is also a pioneer in the passive investment space and has a track record of innovation in this part of the investment market.

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.

ESG Integration

BlackRock was an early signatory to the PRI and has offered ESG-focused funds for several years, including through its iShares range of passive products. However, it only made a company-wide commitment to ESG in January 2020. Following that announcement, the company promised to expand its range of ESG-focused ETFs, screen some thermal coal companies from its actively managed funds and require all fund managers to consider ESG risks.

BlackRock’s Investment Stewardship Team aims to vote at 100% of meetings where it has the authority to do so. The Investment Stewardship team engages with companies, in conjunction with fund managers, and the results of proxy votes can be found on the BlackRock website’s ‘proxy voting search’ function.

BlackRock 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 be more transparent on its voting activity and providing rationales for key votes.

BlackRock raised further concerns in 2022 when it indicated it might support fewer shareholder proposals based on environmental and social issues in the future. However, its support for shareholder resolutions has fallen dramatically, from 40% in 2021 to just 4% in 2024. BlackRock argues that many of the resolutions were overreaching, lacked economic merit or didn’t promote long-term shareholder value, but this reasoning has been met with some scepticism.

Of the funds under HL’s research coverage, this is one of the most carbon intense. The companies within the fund may face increased scrutiny from investors and regulators, as well as higher costs associated with carbon emissions management and potential carbon pricing mechanisms, potentially impacting the fund’s performance.

However, the fund’s composition represents the exposure of the FTSE World Asia-Pacific ex-Japan Index, and the team has no control over the companies included in this passive fund. Although, an ESG version of the fund is available.

Cost

The fund usually has an ongoing annual fund charge of 0.11%, but we’ve negotiated a 0.01% saving so it’s available to HL clients for 0.10%. We believe this is excellent value when compared with other passive funds in this sector. This is 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, except in the HL Junior ISA, where no platform fee applies.

Performance

Since the fund launched in August 2005, it’s tracked the FTSE World Asia-Pacific ex-Japan index well. As is typical of index tracker funds, it’s fallen behind the benchmark over the long term because of the costs involved. However, the tools used by the managers have helped to keep performance tight to the index.

Over the past 12 months, the fund has gained 7.46%*. Remember, past performance isn’t a guide to future returns.

Taiwan’s stock market contributed the most to the fund’s performance over the year. This was led by Taiwan Semiconductor Manufacturing (TSMC), the world’s largest chip manufacturer, which has seen huge growth due to the strong demand for chips essential for the development of Artificial Intelligence (AI). TSMC is the largest company in the index, making up nearly 17%.

Singapore’s stock market also performed well, driven by the strong performance of its banking sector. Higher interest rates have been a tailwind for banks, who profit from the increased cost of borrowing, and could benefit from rates staying higher for longer.

On the other hand, South Korea was one of the worst performing markets in the Asia Pacific region over the last year. There’s been a lot of political uncertainty in South Korea and its economy grew less than expected in 2024.

Given BlackRock's size, experience and expertise running index tracker funds, we expect the fund to continue to track the index closely in the future, though there are no guarantees.

The period between 29 February 2020 and 28 February 2022 reflects the performance of the D Class version of the fund. Performance from 28 February 2022 onwards reflects the performance of the S class version of the fund. This is due to when each share class was launched.