FTSE All World vs. MSCI ACWI IMI vs. MSCI ACWI

• Level: For beginners
• Reading duration: 5 minutes

In this article, we present three ETFs that you can use to invest worldwide. We will introduce you to the most important indices and ETFs, their characteristics and compare their performance to date.

Why choose global ETFs?

ETFs that track global indices are probably the most popular instrument for investors who want to take the most passive approach possible. With a monthly savings plan on an ETF that covers the whole world, you are already broadly positioned. Depending on the desired volatility and potential returns, you can combine it with a bond ETF. With just two ETFs, you are pretty well positioned. This is certainly the simplest, but also one of the most effective investment strategies. Looking back, a global ETF would have outperformed most Wall Street managers in recent years, net of costs. You may be asking yourself: what's the catch? How can someone with no expertise in finance easily achieve higher returns with a few ETFs than experienced portfolio managers? But there is no catch. This is the reality, and if you don't believe it, I invite you to read one of the many reports that prove it. A well known report is the SPIVA study, published annually by S&P Global. Now back to the topic. For many investors, an ETF that tracks a world index is the ideal choice. It requires little effort and minimal knowledge, but still delivers excellent results. The remaining question is which ETFs are suitable for this investment objective?

3 global indices

Let's start with the indices. Once we have identified the desired index, we look for the ETF that replicates it as good as possible. In this case, we have chosen ETFs with companies from all over the world - therefore, not only from developed countries, but also from all emerging markets. That is why we will look at the following indices:

1. FTSE All World Index,
2. MSCI All Country World Index,
3. and MSCI ACWI IMI Index.

Despite the significant differences between the indices, they work according to a similar principle: they weight the shares according to their size in the stock market. This means that the larger a company is, the more influence it has on the index. The FTSE All World index contains around 4,300 shares, while the All Country World contains only 2,800. The index with the most shares is the MSCI ACWI IMI with over 9,000 companies. This index covers around 99 % of the global stock market, including large, medium-sized and small companies. The weighting of the ten largest companies is slightly lower in the MSCI ACWI IMI. Geographically, there are only small differences between the indices. What is identical is that the United States are in first place, followed by Japan, the UK and China. The differences at sector level are also small, as well as the influence of different methodology used by each provider (FTSE and MSCI) to divide up the countries. However, these are three very similar indices that provide broad exposure to companies around the world. The fact that the MSCI ACWI IMI Index includes many more companies than the other two may tempt many investors to look for ETFs that track this index. However, we will later discover that the ETF that replicates this index does not include all companies. As it would be inefficient for the ETF to physically buy all 9,000 shares included in the index, most providers use the optimised sampling method to track indices as accurately as possible with a representative selection (sample) of shares.

ETFs that track world indices

Now that we have identified the indices, we can search the justETF website for ETFs that track them. In the ETF search, we can filter ETFs by "index selection" and search for the three mentioned.

ETFs on the MSCI ACWI IMI

Currently, only two ETFs for the MSCI All Country World Investible Market Index (MSCI ACWI IMI) exist. Both ETFs are issued by State Street. The accumulating one with the ISIN IE00B3YLTY66 was launched in 2011. The first thing that stands out is the size of the fund, which is ten times smaller than the other two ETFs we'll be looking at. This is surprising considering that the index it tracks is the largest. The reason may be that until recently, the TER of this ETF was around 0.4 %, which is much higher than the other two ETFs. Recently, the TER was lowered to 0.17 %, which is now in line with the others. Other features include the fact that the ETF is accumulating, meaning that dividends are reinvested in the fund. It also reflects a random replication with a limited number of companies compared to the index. The index consists of 9,000 companies, but the ETF only contains 3,500, which is even less than the FTSE All World Index. This could be another reason why the ETF has not attracted much capital. The difference in the weighting of the companies from 4,000 to 9,000 is small, but could disappoint expectations. However, a big pro argument in favour of this ETF is that it is the only one to offer real exposure to large, mid and small cap companies, while the other two indices only offer access to large and mid-caps.

ETF on the FTSE All World Index

Secondly, let’s have a look at the ETF that tracks the FTSE All World Index. On the justETF website, we can find four ETFs that allow us to invest in this index. Here we take the ETF issued by Vanguard with the ISIN IE00B3RBWM25 as an example. This ETF has a TER of 0.22 %, is distributing and is also replicated by means of sampling. The underlying index comprises 4,294 companies, while the ETF contains 3,646. The difference is smaller than in the previous case. The size of the fund is acceptable, although the ETF was only launched in 2012.

ETFs on the MSCI ACWI

Finally, let us look at the third index and the corresponding ETF. We can find four ETFs for the ACWI All Country World on the justETF website. Let's have a look at the ETF issued by iShares, with the ISIN IE00B6R52259 as an example. This accumulating ETF is the largest of the three ETFs analysed, with 2,448 companies. The TER (0.20 %) is similar to the other two.

3 ETFs in comparison

If we analyse the three ETFs, we see that they are closely resembling in their characteristics and show few differences in their composition. If we now consider the past performance starting from 22nd of May 2012, the time from which the data is available, the three ETFs have also been very similar. The reason for this is that most of the stocks in all three ETFs are the same, and the differences in the individual ETFs only have a minor impact on the total return.

Which ETF should you choose?

Considering the facts above, there is no clear answer to this question. However, as we have seen, all three are solid ETFs that are excellent for building the long term core of a portfolio. In the end, the choice is up to you!