What is the MSCI All Country World Index?
The MSCI All Country World Index (ACWI) is a stock index designed to track broad global equity-market performance. Maintained by Morgan Stanley Capital International (MSCI), the index is comprised of the stocks of about 3,000 companies from 23 developed countries and 26 emerging markets.
Fund managers use the MSCI ACWI as a guide for asset allocation as well as a benchmark for the performance of global equity funds. The index is also used as the basis for the creation of investment products such as exchange-traded funds (ETFs).
- The MSCI ACWI is a stock index that tracks about 3,000 stocks in 49 developed and emerging market countries, representing a total market capitalization of tens of trillions of dollars.
- The MSCI ACWI index is used as a benchmark for global equity funds and as a guide to asset allocation.
- Individual investors can gain access to the index through ETFs that replicate its performance.
Understanding the MSCI All Country World Index
Investors can diversify their portfolio holdings in a number of ways. A portfolio manager or investor can purchase a range of individual stocks that have a low or negative correlation with each other. A less costly and more efficient way would be to invest in ETFs that replicate the performance of an index such as the Dow Jones Industrial Average or the S&P 500. When it comes to global stocks, the index with the widest selection is the MSCI ACWI.
Given that it is also exposed to U.S. equities, it is little surprise that the MSCI ACWI's top constituents by market capitalization are Apple Inc., Microsoft Corp., and Amazon.com, Inc. As of July 2020, the total market capitalization of all companies represented in the MSCI ACWI was at $47.6 trillion. The countries representing the highest total market cap were the U.S. (58%), Japan (7%), and China (5%). The 44 countries with the smallest capitalization represented 24% of the total index by market cap.
MSCI ACWI as a Benchmark and Portfolio Tool
Institutional investors such as mutual funds and pension funds use the MSCI ACWI as a benchmark to measure the performance of their portfolios, as well as a guide to geographical diversification. Individual investors may also use the ACWI as a benchmark to compare which funds have the best risk-adjusted returns.
The easiest way for investors to gain exposure to the ACWI is through ETFs. A number of ETFs track the index, including the iShares MSCI ACWI ETF (ACWI). This ETF had nearly 2,300 holdings as of September 2020, with net assets of more than $12.6 billion.
Alternatives to the MSCI ACWI for Global Equities
An investor seeking to diversify their portfolio geographically could invest a portion of their funds in an ETF that tracks the All Country World Index. This would give them exposure to a wide range of global stocks. But since the index tracks U.S. stocks as well as foreign equities, an investor who has already allocated a significant portion of their portfolio to U.S. stocks could opt for an ETF that tracks foreign equities only.
Deciding on how to allocate a portfolio is best discussed with a qualified financial advisor.