To have the whole world in your own portfolio – that is the goal that many private investors pursue, and it is the promise that the financial industry makes with increasing success. The best-known index provider MSCI has taken the term “world” into its name for its best-known product. The “MSCI World Index” brings together 1555 large companies from 23 industrialized countries. Sometimes it is already called the “world stock index” as if it stood for the entire genre, just as “tempo” is used as a synonym for “tissue”.
Contrary to what the name suggests, the “MSCI World Index” does not reflect the entire world. Because he only represents the industrialized countries. In the past few decades, however, emerging countries such as China, India, Russia and Brazil have made tremendous economic progress.
There is an index that takes these emerging markets into account. It is called the “MSCI All Country World Index” (ACWI) and comprises 2976 companies from 23 industrialized and 27 emerging countries, almost twice as many as the “MSCI World Index”. Actually, the designation “world share index” would apply more to the ACWI.
“With the MSCI ACWI, an investor is more broadly diversified than with the simple world index, which is an advantage,” says Ali Masarwah from the fund platform Envestor. The emerging countries have a share of around ten percent. As a result, the proportion of US companies compared to the “MSCI World Index” drops from around 70 to around 60 percent.
Due to the still high proportion of US stocks, the index is very dollar-heavy; other currencies are only represented in low doses. This means that investors are taking on a relatively high currency risk in the short term. In the long term, however, currency risks usually cancel each other out. Another critical point is the weight of China compared to other emerging economies. “Not every investor is happy with it from the point of view of sustainability and good corporate governance,” says Masarwah.
And finally, US technology stocks such as Apple, Microsoft, Amazon, Google parent Alphabet and Tesla have by far the greatest weight in the MSCI ACWI. “Anyone who invests in him is making a bet that the stock market will continue to do as it has for the past ten years,” says Masarwah. If that is too one-sided for you, a second ETF, for example on a European stock index, would be well advised. Because the label “world share index” could also mislead investors. An index like the MSCI ACWI could be a good basic investment for beginners, but advanced investors should look carefully to see whether it suits their own needs.