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How to find the best

The MSCI World share index enables retail investors to invest in companies around the world with a single ETF. Our overview reveals exactly what is in the MSCI World and what you should pay attention to when buying.

Why only buy individual stocks when you can instead invest your money in the most important companies in all industrialized countries? You can do this easily by buying shares in an ETF that tracks the MSCI World share index.

The MSCI World is considered a classic among private investors who increase their money with index funds. Experts, direct banks and online brokers praise it – and rightly so: an MSCI World ETF is perfect for long-term private wealth accumulation, especially for stock market beginners with little time and experience in the stock market.

But which companies are actually in the MSCI World? Is there such a thing as the best ETF on the MSCI World? And above all: is there an alternative to this index at all? We explain everything you should know about MSCI World ETFs in our overview.

What is the MSCI World?

The MSCI World Index is a share index in which the company shares of more than 1,600 large companies from 23 industrial nations are listed. That is why the MSCI World is also called the “World Index”.

The abbreviation MSCI stands for “Morgan Stanley Personal-Financial.com International”. Behind it is a financial services provider from New York that publishes numerous international industry and country indices – including the MSCI World. The countries covered by the MSCI World include the USA and Japan, above all European countries such as Germany, France, Great Britain and Italy.

The companies whose shares are included in the MSCI World include large corporations such as Apple, Amazon and Microsoft, but also German companies such as Adidas and SAP. With an index fund or ETF that replicates the MSCI World, you can spread your money and risk widely and benefit from the price gains of the companies in the long term (see below).

What does the MSCI World Index bring me?

Little of the index itself. However, it will be interesting for you as a private investor if you invest in an ETF that replicates the MSCI World. Such ETFs are offered by various companies, for example by the Blackrock subsidiary iShares from the USA or by Xtrackers, a subsidiary of the German fund provider DWS.

ETF stands for “Exchange Traded Fund”, in English: exchange-traded index fund. In this fund, a computer algorithm reproduces an entire stock index. As an investor, you benefit from the performance of a large number of companies, an entire region or an industry. The big advantage over conventional equity funds: ETFs are very cheap and offer at least the same, often even higher, income.

With an ETF that replicates the MSCI World, you benefit from the price gains of all companies that are listed in the index. Since the MSCI World bundles shares of more than 1,600 listed companies from 23 industrial nations, it offers one wide spread of your moneyso that your risk of loss is relatively low. On the other hand, the MSCI World is a good basis for your portfolio because it is comparatively high yields comes in.

It is not possible to say how well the stock index will develop in the future. A look back, however, shows that the MSCI World has developed very well in the past. From 2001 to 2020, the average annual return was just under 4.95 percent. Over the past ten years, the average annual return has even been 8.75 percent.

How does an MSCI World ETF work?

One ETF on the MSCI World index works as follows: A computer algorithm automatically buys the stocks that are contained in the MSCI World and combines them into an equity fund according to their weighting in the index. This special equity fund, also known as an index fund, is therefore a reflection of the MSCI World Index.

If you buy a share of an MSCI World ETF, you are indirectly in possession of all around 1,600 stocks that are listed in the MSCI World. If the average value of all these stocks increases, so does the MSCI World Index – and with it the value of your ETF. The result: If you sell your MSCI World ETF shares at a later date, you will make a profit.

Which countries and stocks are in the MSCI World?

The name “MSCI World“Actually promises a little too much. Because although it contains stocks from companies from 23 countries, the index is relatively US-heavy. Almost 60 percent of the index make up stocks of American companies that are listed on the stock exchange. In second place and three of the most strongly represented countries follow with a share of around eight percent each, Japan and Great Britain.

Specifically, these ten companies have the largest share in the MSCI World:

CompaniescountryShare in the MSCI World
(in percent)
sector
AppleUSA4.84IT
MicrosoftUSA3.49IT
AmazonUSA3.13Online trade
FacebookUSA1.51communication
Alphabet (Google) A.USA1.08communication
Alphabet (Google) CUSA1.05communication
Johnson & JohnsonUSA0.87Pharma
TeslaUSA0.79automobile
VisaUSA0.78IT / finance
NestléSwitzerland0.77Food

Source: msci.com, as of September 2020

This top ten of the most important stocks in the MSCI World is very similar to that of the American Standard & Poor’s 500 index (S&P 500). Asia, South America, Africa – these continents are not covered by the index. Many shares in companies from emerging markets are also missing. Shares from Chinese companies are also not represented.

Even if the MSCI World does not cover the whole world – as the name actually suggests – it still enables you to invest in a large number of companies in many countries and to spread your capital so widely over a large number of successful companies.

Which MSCI World ETF is the best?

iShares, Xtrackers or Comstage – many fund companies offer their own MSCI World ETFs, the selection is growing steadily. Which is the best for you depends on several factors and cannot be answered across the board. It is therefore best to consider the following five criteria when making your selection:

1. Age: How long has the ETF been around?

The age of the fund is important when choosing an equity fund. Funds that have been around for a long time tend to be less risky than younger funds. The reason: Here you can observe a longer course history. As a rule of thumb, it is advisable to only buy shares in MSCI World ETFs that have been in existence for at least five years.

2. Size: What is the fund volume?

The so-called “fund volume” means the amount of assets that a fund or ETF manages. A high fund volume also speaks more in favor of a less risky fund, since many investors apparently invest their money in this fund or ETF.

3. Yield: What is the yield?

An important indicator for an investment in an MSCI World ETF is the performance of the ETF. The following applies: The price development from the past is never a guarantee for future opportunities for profit. Nevertheless, it serves as a good starting point for a first look to see whether an equity fund is growing strongly or moderately.

4. Profit sharing: is there a dividend?

Even with ETFs that replicate the MSCI World, you as an investor can receive a dividend – that is, the part of the profit that a company pays out to its shareholders. If you are interested in such a regular payout, make sure that you buy a “distributing” MSCI World ETF. Otherwise, in the case of so-called “accumulating” ETFs, the fund company withholds the dividend payment and re-invests it automatically.

5. Costs: What are the fees?

Another important factor is – of course – the price of the respective ETF. Therefore, pay attention to the total expense ratio, also known as the “Total Expense Ratio” (TER) called. This includes all annual costs, including administration fees, for example. The TER for an MSCI World ETF is usually between 0.1 and 0.5 percent – per year. For you as an investor, the following applies: the lower the percentage, the better – because you have to subtract the percentage from the annual return.

What are ETF alternatives to the MSCI World?

An investment in an ETF, which uses the index, offers an even broader diversification of your money MSCI All Country World replicates, the bigger brother of the MSCI World Index. This equity index expands the MSCI World, which covers the 23 largest industrialized nations, by the MSCI Emerging Markets index, which contains shares of companies from emerging countries.

With shares in more than 3,000 companies from almost 50 countries, the MSCI All Country World covers around 85 percent of the total value of all stocks in the world. For you as an investor, this means: With an ETF on the MSCI All Country World, you have the opportunity to invest in virtually the entire global economy.

In addition to the countries represented in the MSCI World, the MSCI All Country World contains stocks from countries such as Australia, Brazil, China, South Africa and Turkey. But here, too, stocks from US corporations such as Apple, Microsoft, Amazon currently dominate:

Companies

originShare in the MSCI All Country World
(in percent)
Branch
AppleUSA4.26IT
MicrosoftUSA3.07IT
AmazonUSA2.75Online trade
FacebookUSA1.33communication
Alibaba groupChina1.02Consumer goods
Alphabet (Google) CUSA0.95communication
Alphabet (Google) A.USA0.92communication
Johnson & JohnsonUSA0.76Pharma
Tencent HoldingsChina0.74communication
TeslaUSA0.69automobile

Source: msci.com, as of September 2020

If the USA share in the MSCI All Country World is too high for you, you can alternatively invest your money in an ETF that only has the MSCI Emerging Markets maps. This lists shares of around 1,400 companies from emerging countries, including many Chinese companies:

Companies

originShare in MSCI Emerging Markets
(in percent)
Branch
Alibaba groupChina8.41Online trade
Tencent HoldingsChina6.12IT
Taiwan SemiconductorTaiwan5.58communication
SamsungKorea3.38IT
Meituan DianpingChina1.83Online trade
Naspers NSouth Africa1.27Media and IT
Reliance IndustriesIndia1.26energy
China ConstructionChina1.06Finances
JD.comChina1.04Online trade
Ping An InsuranceChina0.99Finances

Source: msci.com, as of August 2020

What return does the MSCI World promise?

The Income, called returns, of the MSCI World are impressive. Since the financial services provider Morgan Stanley Personal-Financial.com International first calculated the MSCI World in 1969, the value of the index has multiplied by a factor of 23 by 2019.

For over 40 years, the MSCI World has achieved an average annual return of almost 5.9 percent – despite intermittent stock market crashes such as at the turn of the millennium (dot-com bubble) and 2009 (global financial crisis).

How well the MSCI World fared compared to the MSCI All Country World and the MSCI Emerging Markets is shown in the following overview, which shows the average increase in value of the respective indices per year over individual periods:

MSCI World (in percent)MSCI Emerging Markets (In percent)MSCI All Country World (in percent)
1 year8.115.787.84
3 years10.203.019.35
5 years9.607.649.37
ten years12.044.7611.17
Since December 31, 19985.928.945.95

Source: msci.com, as of September 2020

The comparison shows: The MSCI World has brought the strongest return on average over the past ten years. In the longer term, however (since the end of 1998), the MSCI Emerging Markets achieved the highest annual return with an average of 8.94 percent.

Tip: Only use money that you will not need in the near future for an investment in an MSCI World ETF and invest it for the long term. Because: Only after an investment period of 15 years can you assume that short-term price fluctuations will even out and that you will generally make profits.

MSCI World ETF – What role do exchange rates play?

Anyone who has bought an ETF on the globally investing MSCI World Index also indirectly has dollars in their portfolio. Many of the approximately 1,600 companies listed in the index come from the USA (see above). For you as an investor, the exchange rates only play a subordinate role. Because most providers hedge the currency risk – for example with futures or options.

Basically: The dollar is a comparatively stable currency. Compared to some other currencies from emerging countries, the rate fluctuations are limited. The dollar is also quite stable compared to the euro.

With so-called Futures trading between business partners can be postponed by more than two days – for example if the exchange rate is currently unfavorable for you as a private investor.

One Option business is a special form of futures. The buyer pays the seller a premium (option premium) for the right to buy or sell a certain number of securities at a previously agreed price (strike price) at any time during the term of the option.

Where can I buy MSCI World ETFs?

ETFs are traded on the stock exchange. This also applies to ETFs that track the MSCI World. As a private investor, you can conveniently buy ETFs via your share portfolio at direct banks and online brokers. The costs for an MSCI World ETF often depend on the amount invested.

Tip: With smartphone brokers like Trade Republic, Gratisbroker and Justtrade, you can save money even compared to cheap direct banks.

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