The MSCI All Country World Index: Definition, Components, and Investment Insights
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Summary:
The MSCI All Country World Index (ACWI) is a global stock index that encompasses nearly 3,000 companies from 23 developed countries and 25 emerging markets. Fund managers and individual investors use it as a benchmark for global equity funds and asset allocation. This article explores the significance of the MSCI ACWI, its components, and how it can be accessed through exchange-traded funds (ETFs).
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What is the MSCI all country world index?
The MSCI All Country World Index (ACWI) is a widely recognized stock index that serves as a barometer for global equity market performance. Managed by Morgan Stanley Capital International (MSCI), this index comprises the stocks of nearly 3,000 companies from 23 developed countries and 25 emerging markets.
Investors seek diversification in various ways, from owning individual stocks with low correlation to investing in exchange-traded funds (ETFs) that mimic the performance of renowned indices like the Dow Jones Industrial Average (DJIA) or the S&P 500. The MSCI ACWI index, in particular, offers a practical solution for those looking to add global exposure to their portfolio.
Institutional investors, such as mutual fund and pension fund managers, often employ the MSCI ACWI as a benchmark to gauge the performance of their portfolios and as a guide for geographical diversification. Even individual investors can utilize the ACWI as a benchmark to evaluate which funds provide the best risk-adjusted returns.
MSCI ACWI index vs. iShares ACWI ETF
Generally, investors cannot directly purchase an index like the MSCI ACWI since it primarily represents the performance and characteristics of various sectors, countries, and equity holdings. Instead, they can invest in an ETF that closely tracks or mirrors the composition and performance of the index. Let’s compare the MSCI ACWI index to Blackrock’s iShares MSCI ACWI ETF, highlighting some of the key country, sector, and portfolio holdings.
MSCI ACWI index country and sector weightings
The MSCI ACWI index’s highest total market cap is attributed to the United States (61.31%), followed by Japan (5.54%), China (3.62%), the United Kingdom (3.6%), and Canada (2.9%). The weightings for each sector as of December 31, 2021, are as follows:
- Information technology: 23.58%
- Financials: 13.86%
- Consumer discretionary: 12.4%
- Health care: 11.69%
- Industrials: 9.64%
- Communication services: 8.58%
- Consumer staples: 6.8%
- Materials: 4.67%
- Energy: 3.4%
- Utilities: 2.7%
- Real estate: 2.7%
MSCI ACWI index top holdings
The top ten holdings in the MSCI ACWI index, as of December 31, 2021, constitute 17.10% of the index’s weighting and include:
- Apple Inc: 4.18%
- Microsoft Corp: 3.42%
- Amazon.com: 2.16%
- Tesla: 1.27%
- Alphabet A: 1.24%
- Alphabet C: 1.19%
- Meta Platforms A: 1.14%
- Nvidia: 1.05%
- Taiwan Semiconductor Mfg: 0.78%
- Unitedhealth Group: 0.67%
The MSCI ACWI index and Blackrock’s iShares MSCI ACWI ETF have similar sector and top ten holdings with nearly identical portfolio weightings as of January 25, 2022. Let’s delve into how these two compare in terms of performance.
iShares MSCI ACWI ETF
One of the ETFs that allows investors to gain exposure to the MSCI ACWI index is Blackrock’s iShares MSCI ACWI ETF. As of January 25, 2022, this ETF boasts nearly $17.5 billion in assets under management (AUM).
The iShares ETF holds the stocks of 2,332 companies from the index and features an expense ratio of 0.33% as of January 25, 2022. The expense ratio represents the cost incurred by investors for Blackrock to manage the fund.
This iShares ETF closely mirrors the sector allocation and top ten holdings of the MSCI ACWI index, maintaining almost identical portfolio weightings as of January 25, 2022. The following table displays the fund’s performance in comparison to the MSCI ACWI index as of December 31, 2021:
MSCI ACWI index vs. iShares MSCI ACWI ETF performance
| iShares MSCI ACWI ETF | MSCI ACWI index | |
|---|---|---|
| One year | 18.38% | 18.54% |
| Three years | 20.41% | 20.38% |
| Five years | 14.55% | 14.40% |
Source: Blackrock Inc.
Alternatives to the MSCI ACWI for global equities
For investors seeking geographical diversification, another option is to invest in an ETF that tracks the MSCI ACWI All Cap Index. This index comprises more than 15,000 equity holdings from 23 developed markets and 25 emerging markets, offering exposure to a wide array of global stocks, including many small and mid-cap stocks.
It’s crucial to note that indices containing foreign equities may also include U.S. stocks. Therefore, investors should carefully monitor their exposure to U.S. equities, particularly if a substantial portion of their portfolio is already allocated to U.S. stocks. To determine the most suitable asset allocation strategy for your investment needs and long-term financial goals, it’s advisable to consult a qualified financial advisor.
Frequently asked questions
What is the purpose of the MSCI All Country World Index?
The MSCI All Country World Index (ACWI) serves as a comprehensive measure of global equity market performance, encompassing stocks from various developed and emerging market countries. It is widely used by fund managers and investors as a benchmark for global equity funds and for guiding asset allocation decisions.
How can individual investors access the MSCI ACWI?
Individual investors can gain exposure to the MSCI ACWI through exchange-traded funds (ETFs) that replicate the index’s performance. These ETFs are designed to mirror the composition and returns of the ACWI, making it accessible to a broader range of investors.
What are the top holdings in the MSCI ACWI index?
As of December 31, 2021, the top holdings in the MSCI ACWI index include prominent companies like Apple Inc, Microsoft Corp, Amazon.com, and others. These holdings collectively represent a significant portion of the index’s weight, influencing its performance.
How is the MSCI All Country World Index calculated?
The MSCI ACWI is a market-capitalization-weighted index, which means that the companies with higher market capitalization have a more significant influence on the index’s performance. The index is calculated by summing the market capitalization of all its constituents and then adjusting for factors like free float, investability, and foreign ownership restrictions.
Are there regional variations in the MSCI ACWI index?
Yes, the MSCI ACWI index includes both developed and emerging market countries, so there are regional variations. The index’s weightings can change over time based on factors like economic growth and market performance in different regions. This makes it important for investors to stay updated on regional allocations.
Is the MSCI ACWI a good indicator of global economic health?
While the MSCI ACWI is a widely recognized benchmark for global equity markets, it primarily reflects the performance of the stock market. It’s important to note that economic health is influenced by various factors beyond stock market performance, including GDP, inflation, and employment rates. Therefore, while the MSCI ACWI provides insights into global equity markets, it may not be a complete indicator of overall economic health.
Key takeaways
- The MSCI All Country World Index (ACWI) tracks global equity markets, comprising stocks from 48 developed and emerging market countries.
- It is used as a benchmark for measuring the performance of global equity funds and guiding asset allocation strategies.
- Investors can access the MSCI ACWI through ETFs that replicate its composition and performance.
- The index’s top holdings include prominent companies like Apple, Microsoft, and Amazon.
- Alternative options, such as the MSCI ACWI All Cap Index, provide even broader exposure to global equities.
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