We have seen before how to analyze the most important information of an ETF, now the question is - how can we expose ourselves to the market performance of the world in the easiest possible way?
It is not that difficult, but you can choose different routes - the most convenient and simple being to buy just one ETF covering the whole world.
If you go for this, you need to pay attention and check that in the name of the ETF you find All-World or ACWI (All Country World Index) and not just World. The latter usually refers to developed countries ONLY.
Some good examples are the Vanguard FTSE All-World UCITS ETF Distributing (available also as Accumulating - Vanguard FTSE All-World UCITS ETF (USD) Accumulating) or the iShares MSCI ACWI UCITS ETF (Acc). Usually the Total Expense Ratio (TER) is around 0.2 - 0.22% and you should not pay more than that for such ETF.
Easy, peasy - we can all go home! Well, there is one potential drawback to this option: while Emerging markets such as China will be present in your ETF, they will be vastly under-represented compared to the size of their economies.
To understand this, we need to consider that the weight of the countries in the ETF is NOT done based on their GDP (Gross Domestic Product) but based on the size of their stock market. This means that a country with a very developed stock market - e.g. USA - will be taking a more prominent position compared to its pure GDP "fair share".
Case in point: USA accounts for more than 55% of the stock market capitalization, while making up around 24% of the global GDP. China - on the other hand - represents 18% of the world GDP, while having approximately 5% of the world stock market. You can download the factsheet of the previous ETFs and check for yourself this point (if you are still unsure, revisit the previous blog).
If you are not happy with the "unbalance" towards countries with developed stock markets, you can go for a combination of ETFs with different geographical focus (e.g. Europe, Emerging markets) and balance the portfolio according to your wishes.
Here the options start to grow dramatically, so I will share what I have been using:
- iShares Core MSCI Europe UCITS ETF EUR (Dist)
- iShares MSCI EM UCITS ETF (Dist)
- Vanguard FTSE North America UCITS ETF Distributing (until recently I was using the iShares equivalent but I discored it had a 0.4% TER vs 0.1% of this one)
For all the above, the TER is below 0.18% and the fund size is well above 1,000 mln Euro. In terms of split, I keep it equal across the three geographies - meaning each accounts for one third of the total.
Last but not least, one could also take an ETF following the developed countries (remember the World vs All-World point above) and add one ETF about emerging markets:
- iShares Core MSCI World UCITS ETF USD (Acc)
- iShares MSCI EM UCITS ETF (Dist) (no surprise here, same as above)
This is also extremely popular, as testified by the fund size of the first ETF - almost 40,000 mln Euro! The usual split would be 70:30.
If you want more options, the best you can do is to use the search function on justetf and use the filters on the left. At the time of writing, there are 1760 ETFs you can look into, so there is plenty for every (ordinary) taste!
I am not a professional investor and that nothing contained in this blog should be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.
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