Wise investment option: Exploring the benefits of world ETFs
The MSCI World ETF, a popular choice among investors seeking to bet on the global economy, focuses on developed countries and excludes emerging markets, such as China. In contrast, the MSCI All Country World Index (ACWI) covers both developed and emerging markets, offering a broader investment scope.
The MSCI World ETF, with over 1,400 stocks from around 23 countries, provides a broadly diversified low-risk investment opportunity, particularly for retirement savings. However, its focus on developed markets may limit potential growth opportunities, a gap that the MSCI ACWI aims to fill.
The MSCI ACWI, with over 2,700 components, includes emerging markets that are not yet saturated, particularly in the technology sector. This could potentially make it a more attractive choice for ETF investors seeking growth opportunities.
Despite the growth potential of emerging markets, the MSCI World ETF has performed well this year, gaining 14 percent since the beginning, while the MSCI ACWI has gained 13.4 percent. This close performance underscores the resilience of both indices in the face of global economic crises and challenges.
Historically, both indices have shown steady growth. Since 1987, the MSCI World has averaged an annual performance of 8.53 percent, while the MSCI ACWI has averaged 8.34 percent.
The top ten components in both indices account for just over 20 percent, with the largest represented sectors being technology, finance, and healthcare. Notably, the MSCI ACWI includes TSMC from Taiwan, while the MSCI World includes Eli Lilly.
Stocks from emerging markets in the MSCI ACWI carry a bit more risk, but setbacks could be absorbed more easily due to the similar weighting of the top ten positions. The MSCI World ETF's focus on developed countries may make it safer and more successful at the moment.
For long-term investors, ETFs like those on MSCI ACWI or FTSE All-World, which cover both developed and emerging markets more broadly than the MSCI World, may be better suited due to broader diversification including emerging markets.
In conclusion, while the MSCI World ETF remains a respected and recognised choice, the MSCI ACWI offers potential growth opportunities that may be worth considering for investors seeking a more diversified portfolio. As always, it's essential to conduct thorough research and consider individual investment goals before making decisions.
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