What is the MSCI All Country World Index (ACWI)?
The MSCI ACWI is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. The MSCI ACWI is maintained by Morgan Stanley Capital International (MSCI) and is comprised of stocks from 23 developed countries and 24 emerging markets.
Understanding the MSCI All Country World Index (ACWI)
There are a number of ways that investors can diversify their portfolio holdings. A portfolio manager or investor can purchase individual stocks that have a low or negative correlation with each other. But to fully reap the benefits of diversification, many investors look to ETFs, since purchasing numerous stocks from multiple sectors and countries could prove costly. An exchange-traded fund (ETF) tracks and replicates the performance of an index like the Dow Jones, S&P 500, Nasdaq 100, etc. An index that has the broadest selection of publicly traded stocks is the MSCI ACWI.
The All Country World Index is an index that was created by MSCI Inc. The ACWI represents the performance of small- to large-cap stocks from 23 developed and 24 emerging markets. As of April 2019, the index tracks 2,700 stocks of which the top five by market capitalization are Apple, Microsoft, Amazon, MSCI India ETF, and Facebook.
As of April 2019, the top 5 countries with the highest market cap by stock allocation are the US, Japan, UK, China, and France with 54.41%, 7.58%, 5.21%, 3.6%, and 3.42% of the total index market cap, respectively. The other 42 countries with stocks in the MSCI ACWI make up 25.7% of the market cap. These figures are subject to slight changes over time.
- The All Country World Index was created by MSCI and tracks 47 countries and more than 2,700 stocks.
- It is used as a benchmark to compare performance and gauge overall global stock market strength or weakness.
- Investors can gain access to the index through the use of ETFs that track the index.
MSCI All Country World Index (ACWI) as a Benchmark and Portfolio Tool
Institutional investors, such as pension funds and hedge funds, use the MSCI ACWI as a benchmark to measure the performance of their portfolios. A portfolio manager may compare his holdings to the ACWI to determine how well diversified his portfolio is. Individual investors may also use 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 MSCI ACWI, including the iShares MSCI ACWI ETF (ACWI).
Investors who are looking to diversify past their national borders and who are seeking long-term growth in their portfolios may opt for this ETF. The ETF consists of 1,377 holdings, as of April 2019, with net assets of $10.69 billion. Between March 2008 and April 2019 the average annual return was 5.45% for the ETF.
Two other ETFs that provide broad global exposure are the iShares MSCI ACWI ex-US Index Fund (ACWX) and the SPDR MSCI ACWI ex-US ETF (CWI). These funds don't include US stocks.
Example of How to Use the MSCI All Country World Index (ACWI)
An investor seeking to diversify their portfolio could invest a portion of their funds in an ETF that tracks the All Country World Index.
By purchasing the ETF the investor is gaining exposure to a wide range of global stocks. Since the index tracks a wide range of US stocks, the investor could opt to use an ex-US ETF if they wanted to gain exposure to stocks outside the US. This may be suitable if the investor already holds other US ETFs or has allocated a significant portion of their portfolio to US stocks.
Deciding on how to allocate a portfolio is best discussed with a qualified financial advisor.
Investors can also use the index as a benchmark, keeping in mind that the US market will have the most impact on the index. If their portfolio is lagging behind the ACWI index it means it is performing worse than the market-cap weighted global market. If their portfolio is doing better than the index, the portfolio is performing better than the global market.