How to Invest in the Global Economy with the MSCI World Index

The MSCI World Index is a popular choice for investors who want to gain exposure to the global economy. The index tracks the performance of large- and mid-cap stocks in 23 developed markets, and it is a good way to diversify your portfolio and reduce your risk.

The MSCI world

What is the MSCI World

The MSCI World is an index that tracks the performance of stocks of more than 1,500 companies from developed countries. Some of these countries are the United States with a 68% weight, followed by Japan with 6% and the United Kingdom with 4%, apart from many others, up to 23 countries included as of 31/03/2023.

This index represents approximately 85% of the world's market capitalization and covers a wide variety of economic sectors. It is used as a reference to evaluate the profitability of global investments and provides an overview of the global stock market.

What companies are part of the MSCI World

As we have said, this index is made up of 1,600 companies and the ETFs try to replicate it, so they will invest in those companies, trying to weight them in the same way as the index.

Some of the companies that make up the MSCI World are the following:

CompanyWeight
Apple4.54%
Microsoft3.39%
Amazon1.66%
Nvidia1.11%
Tesla1.06%
Alphabet1.04%

These are the 6 companies with the highest weight. The following weigh less than 1%.

Investing in the MSCI World through ETFs

ETFs tracking the MSCI World provide an opportunity to efficiently diversify your portfolio.

By investing in the MSCI World through ETFs, you have the possibility to access a wide range of companies from different sectors and countries in a single instrument. This allows you to reduce risk by in investing in ETFs, which potentially can generate greater stability and long-term growth opportunities for your portfolio.

Costs of investing in the MSCI World through ETFs

Like any financial instrument, ETFs also have a commission.

It is important that we look at not paying excessive fees, as it is ultimately a matter of passive management.

The average cost of investing in MSCI World ETFs is around 0.12% and 0.50%.

Table of pros and cons of investing in MSCI World ETFs

Pros of investing in MSCI World

  • It is a very diversified index in all its senses, that is, both in countries, companies, and weights.
  • It has obtained an average return of more than 5% in recent years.
  • It is not necessary to invest in all the companies individually and have to pay for the price that each share dictates. Through an ETF you can invest in all the companies at once.

Cons of investing in MSCI World

  • The weight of the US economy weighs much more than the rest.
  • Only 23 countries weigh in the index, which takes into account all the countries in the world, there would still be quite a few missing.

Best ETFs indexed to the MSCI World

Below we will see a table where the best ETFs will be indicated ordered by profitability, but do not forget to also check the TER (These ETFs are available through InterActive Brokers.):

NameTickerYield 3yTER
iShares Core MSCI World UCITS ETF USD (Acc)EUNL45,840,20
Lyxor MSCI World UCITS ETF – DistLYYA45,790,30
SPDR MSCI World UCITS ETFSPPW45,580,12

As you can see in the table, the ETFs are very similar in terms of the returns obtained, which means they are replicating the MSCI World index quite similarly. However, we can also see a big difference in the TER, especially between the second and third ETF in the table, which would indicate that the third one would be more interesting to invest in given that it has lower commissions, despite having a few decimal points less of return.

Alternatives to investing in the MSCI World

Some of the most popular alternatives to the MSCI World that we can opt for are the following:

  • S&P 500: It is an index that follows the performance of the 500 largest companies in the United States. ETFs such as the H SBC S&P 500 UCITS ETF USD (Ticker: H4ZF) replicate this index.
  • Dow Jones Global Titans 50: This index includes the 50 largest companies worldwide in terms of market capitalization. The ETF Lyxor DJ Global Titans 50 UCITS ETF – Dist (Ticker: L8IF) follows this index.
  • MSCI Emerging Markets: This index focuses on companies from emerging markets, which are developing economies with high growth potential. The ETF UBS ETF (LU) MSCI Emerging Markets UCITS ETF (USD) A-dis (Ticker: UIMI) replicates this index.
  • FTSE Developed Europe: This index focuses on stocks of developed European companies. The ETF Vanguard FTSE Developed Europe UCITS ETF (EUR) Accumulating (Ticker: VWCG) follows this index.

FAQs

How to invest in the MSCI World?

You can do it through various financial instruments, either through a broker using ETFs or through index funds.

What is the MSCI World indicator?

The MSCI World tracks the growth of leading companies in 23 developed countries, such as the United States, Japan, the United Kingdom, France, and Canada, reflecting their market capitalization.

Who makes up the MSCI World?

The countries currently part of the index are Germany, Australia, Austria, Belgium, Canada, Denmark, Spain, United States, Finland, France, Hong Kong, Ireland, Israel, Italy, Japan, Norway, New Zealand, Portugal, United Kingdom, and Singapore.

Related Articles