Investors looking to increase their equity portfolio's diversification might consider exchange-traded funds (ETFs) that track global indexes. One such is the Morgan Stanley Capital International (MSCI) World Index, which reflects 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.
Three ETFs that either directly track the MSCI World Index or are highly correlated to it include the iShares MSCI World ETF (URTH), the Vanguard Total World Stock ETF (VT) and the iShares MSCI ACWI ETF (ACWI). These global investment funds offer the best of both worlds—domestic and international securities—and the ultimate diversification play. Here's the lowdown on each of them. All information included here was accurate as of Nov. 29, 2019.
- Those looking to invest abroad should consider exchange-traded funds that track or closely correlate to the Morgan Stanley Capital International (MSCI) World Index.
- Three leading ETFs that act as proxies to the index are IShares MSCI World ETF, IShares MSCI ACWI ETF, and Vanguard Total World Stock ETF.
IShares MSCI World ETF
The iShares MSCI World ETF is the only fund that directly tracks the MSCI World Index. Approximately 63% of the fund is invested in the United States (nine of its top 10 holdings are American companies, including Apple, Microsoft, Amazon, and Facebook). The top five international countries in the fund, comprising nearly 25% of the portfolio, are Japan, the United Kingdom, France, Canada, and Switzerland. Its holdings include 1,215 securities across all of the major equity sectors.
Since the iShares MSCI World ETF's inception in January 2012, its average annual return has been 10.37%—but year to year, it's been a volatile ride: Annual total returns have ranged from -8.37% (in 2018) to 26.74% (in 2013). Its YTD daily total return is 24.87%. The fund has more than $835 million in net assets and an expense ratio of 0.24%, lower than the fund-category average of .40%.
Vanguard Total World Stock ETF
The Vanguard Total World Stock ETF does not directly track the MSCI World Index (its actual benchmark is the FTSE Global All Cap Index) but does have a close correlation to it, making it a very accurate proxy. The fund invests in more than 8,100 securities worldwide. About 58% of the portfolio is invested in North America (9 out of its top 10 holdings are American companies), with the next two most heavily invested regions being Europe (Nestle SA is the sole non-American firm in the top 10), at 18.5% of the portfolio, and the Pacific, at 13%.
The fund began on June 24, 2008, and it has an average annual return rate of 5.97% since inception. Its YTD daily total return is 23.25%, but annual returns for the fund have ranged from -9.67% (in 2018) to 33.62% (in 2009). The Vanguard Total World Stock ETF has $17.23 billion in net assets and an expense ratio of 0.09%, much lower than the average expense ratio of funds holding similar securities.
The MSCI World Index is not to be confused with the MSCI All-Country World Index (ASWI); although they overlap, the former only includes stocks of developed countries, while the latter includes stocks in both developed and emerging markets.
IShares MSCI ACWI ETF
The iShares MSCI ACWI ETF is another fund that does not directly track the MSCI World Index—it tracks Morgan's ASWI 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 almost 2,300 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 international countries represented in the portfolio are Japan at 7.5%, the United Kingdom at 4.74%, and China at 4.01% (Alibaba is the sole non-American company in the top 10 holdings).
The iShares MSCI ACWI ETF was created on March 26, 2008, and it has an average annual return rate of 5.53% since inception. Like its fellow funds, it's had a bumpy ride—yearly returns have ranged from -9.15% (in 2018) to 35.23% (in 2009)—but 2019 has been a very good year: the YTD total return is 23.04%. The fund has over $11 billion in net assets and an expense ratio of 0.31%.