Best World ETFs

Investing in the stock market can be a great way to grow your wealth, but it can also be risky. Hence, diversification become very important to building a resilient portfolio.

One way to diversify is to invest beyond the United States by building a global portfolio.

How to invest globally in stocks?

There are several ways to do so – you can pick individual stocks like China’s tech giants (Tencent, Alibaba and more) or Singapore’s bank stocks that pay good dividends (DBS, OCBC, UOB) and even Argentine’s conglomerate MercadoLibre.

But, these names probably sound foreign to you and that would make investing in them difficult, especially since we are not familiar with these countries’ policies.

How can we invest globally with a better margin of safety?

Introducing World ETFs

World ETFs are a type of exchange-traded fund (ETF) that tracks the performance of broadly diversified world indices that are weighted by market capitalization.

This type of fund provides investors with diversification and exposure to different markets around the world, making them an attractive option for young investors looking to build a balanced portfolio.

In this article, we’ll explore what world ETFs are and why they might be beneficial for young investors looking to diversify their portfolios. We’ll also discuss some of the best world ETFs available and how you can get started investing in them.

Best World ETFs

Hands down, the best world ETFs are Vanguard’s Total World Stock Index Fund ETF (VT) and iShares’ MSCI ACWI ETF (ACWI).

They allow investors to own a diverse portfolio of global stocks across wide range of sectors and industry for a low fee, while offering good liquidity.

For an in-depth comparison, read our breakdown of VT vs ACWI ETF. But for now, here’s the comparison table mentioned in our comparison post:

	Vanguard Total World Stock Index Fund ETF	iShares MSCI ACWI ETF
Ticker	VT	ACWI
Fund Manager	Vanguard	Blackrock
Expense Ratio (Annual)	0.07%	0.32%
Underlying Index	FTSE Global All Cap Index	MSCI All Country World Index
AUM (USD)	$35.7 B	$18.7 B
Average Daily Volume	$225.87M	$382.98M
Inception Date	24 Jun 2008	26 Mar 2008
Dividend Yield	2.11%	1.71%
No. of Constituents	9523	2376
Why This ETF?	Exposure to large-, mid-, and small-capitalization companies located around the world	Exposure to large and mid-capitalization developed and emerging market equities

3 Best World Indices

If you’ve been comparing World ETFs, you’d notice that most of them track one of the following index:

1. MSCI World Index: The MSCI World Index is a market-capitalization weighted index that tracks the performance of large and mid-cap stocks from 23 developed countries around the world. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
2. FTSE All-World Index: The FTSE All-World Index is a market-capitalization weighted index that tracks the performance of large, mid, and small-cap stocks from both developed and emerging markets around the world. The index covers approximately 98% of the world’s investable market capitalization.
3. MSCI All Country World Index (ACWI): The MSCI All Country World Index (ACWI) is a market-capitalization weighted index that tracks the performance of large, mid, and small-cap stocks from from 23 developed markets and 27 emerging markets. The index covers approximately 85% of the global equity market capitalization.

The Benefits of Investing in World ETFs

Investing in World ETFs is a great way to diversify your portfolio and gain exposure to global markets. Here’re the key advantages of investing in World ETFs:

1. Diversification: World ETFs provide exposure to a broad range of companies across different countries and industries, which can help reduce the risk of investing in individual stocks.
2. Access to global markets: World ETFs allow investors to gain exposure to international markets without having to invest directly in individual companies or navigate the complexities of foreign markets.
3. Lower costs: World ETFs typically have lower fees compared to actively managed funds, making them an attractive option for investors looking to keep their costs low.
4. Liquidity: World ETFs trade on stock exchanges like individual stocks, making them easy to buy and sell quickly.
5. Flexibility: World ETFs can be bought and sold throughout the trading day, providing investors with flexibility to adjust their portfolios as needed.
6. Potential for long-term growth: Investing in a diversified portfolio of companies across the globe can provide investors with exposure to a range of growth opportunities, potentially leading to long-term investment gains.
7. Transparency: World ETFs disclose their holdings regularly, allowing investors to easily track their investments and make informed decisions about their portfolios.

How to Choose the Best World ETFs for Your Portfolio?

1. Diversification: Look for World ETFs that provide exposure to a broad range of companies across different countries and industries. A well-diversified portfolio can help reduce risk and provide long-term growth potential.
2. Expense ratio: Look for World ETFs with lower expense ratios, which can help reduce costs and increase returns over time.
3. Index tracking: Choose World ETFs that track established and reputable indices, such as MSCI World or FTSE All-World. These indices provide exposure to a broad range of companies and can help ensure that your investment aligns with your goals.
4. Liquidity: Choose World ETFs that are highly liquid, with high trading volumes and narrow bid-ask spreads. This ensures that you can buy and sell shares quickly and easily, without incurring significant transaction costs.
5. Performance: Look for World ETFs that have a history of strong performance relative to their benchmark indices. However, keep in mind that past performance is not a guarantee of future returns.
6. Management style: Consider the management style of the World ETFs you are considering. Passive management, which seeks to track an index, may be a better option for investors seeking broad exposure to global markets, while active management may be better for investors seeking to outperform the market through individual stock selection.
7. Tax efficiency: Look for World ETFs that are tax-efficient, with low portfolio turnover and distributions, to minimize tax liabilities.

What Are the Risks of investing in World ETFs?

Investing comes with risks, and World ETFs are not exempted from the following:

1. Market risk: World ETFs are subject to market risk, which means that their value can rise or fall based on overall market conditions. This can include global economic trends, political instability, and changes in interest rates.
2. Currency risk: World ETFs invest in stocks from different countries, which means that they are subject to currency risk. Fluctuations in exchange rates can affect the value of these investments.
3. Country risk: World ETFs invest in companies from different countries, which means that they are exposed to the economic and political conditions of those countries. This can include regulatory changes, geopolitical tensions, and economic instability.
4. Concentration risk: As world indices tend to be weighted by market cap, World ETFs may remain concentrated in certain regions or sectors, which can increase their exposure to risk in those areas. It’s important to carefully review the holdings of any ETFs you are considering to ensure that they are well-diversified.
5. Liquidity risk: Although World ETFs are generally highly liquid, there may be times when it is difficult to buy or sell shares, particularly during times of market stress.
6. Tracking error risk: World ETFs that track indices may not perfectly replicate the performance of those indices, due to factors such as fees and tracking error. This can result in lower returns than expected.
7. Management risk: Active World ETFs are subject to management risk, which means that their performance depends on the skill and expertise of the fund’s management team.

Should you invest in World ETFs?

It all boils down to your financial goals and risk tolerance.

If you are looking for a stress free way to invest and grow your money at a global market rate, World ETFs offer a great avenue to start investing. To help you, we’ve put together an ETF investing guide!

If you already own US stocks or S&P500 ETFs and are looking for ETFs that give you exposure to stocks listed overseas, consider the best International ETFs instead.

However, if you aim to grow your money at a faster rate, you’ll probably need to explore other ETF strategies or learn to pick stocks that can outperform the markets in the long run.