The Morgan Stanley Capital International (MSCI) World Index tracks the performance of investments in the United States and Canada, 16 countries in Europe and the Middle East, and five countries in the Asia-Pacific region. Investors looking to increase their portfolio's diversification may consider looking into exchange-traded funds (ETFs) that track global indexes, such as the MSCI World Index.
Investing in international equities may reduce risk and increase return potential for those who are already invested in domestic equities. For those not invested in equities, global investment funds offer the best of both worlds: domestic and international securities.
ETFs that either directly track the MSCI World Index or are highly correlated to it include the iShares MSCI World ETF (NYSEARCA: URTH), the Vanguard Total World Stock ETF (NYSEARCA: VT) and the iShares MSCI ACWI ETF (NASDAQ: ACWI). All information included here was accurate as of Oct. 2, 2018.
IShares MSCI World ETF
The iShares MSCI World ETF is the only fund that directly tracks the MSCI World Index. Approximately 62% of the fund is invested in the United States. The top five international countries in the fund, comprising nearly 25% of the portfolio, are Japan, the United Kingdom, France, Canada and Germany. Its holdings include more than 1,190 securities across all of the major equity sectors.
Since the iShares MSCI World ETF's inception in January 2012, its average annual return is 11.70%. Yearly returns have ranged from -0.64% to 26.74%. The fund has more than $5.66 billion in net assets and an expense ratio of 0.24%.
Vanguard Total World Stock ETF
The Vanguard Total World Stock ETF does not directly track the MSCI World Index but does have a close correlation to it, making it a very accurate proxy for the index. The fund invests in more than 8,100 securities worldwide. About 58% of the portfolio is invested in North America, with the next two most heavily invested regions being Europe, at about 19% of the portfolio, and the Pacific, at nearly 14%.
The fund began on June 24, 2008, and it has an average annual return rate of 6.46% since inception. Yearly returns for the fund have ranged from -7.71% to 33.62%. The Vanguard Total World Stock ETF has $16.69 billion in net assets and an expense ratio of 0.10%, which is 91% lower than the average expense ratio of funds holding similar securities.
IShares MSCI ACWI ETF
The iShares MSCI ACWI ETF is another fund that does not directly track the MSCI World Index, but it also has a close correlation to it, which makes it another good choice as an investable proxy for the index. This fund has holdings in more than 1,300 large- and mid-capitalization equities in developed markets, as well as emerging markets. Approximately 56% of the fund is invested in the United States. The top three developed international countries in the portfolio are Japan, at 7.54%, the United Kingdom at 5.38% and France at 3.39%.
The iShares MSCI ACWI ETF was created on March 26, 2008, and it has an average annual return rate of 5.63% since inception. Yearly returns for the fund have ranged from -2.39% to 24.35%. The fund has $8.96 billion in net assets and an expense ratio of 0.32%.