The Best Global Equity ETFs for 2024

Thousands of companies from around the globe, all with a single investment: global equity ETFs provide global market returns and best-in-class stock diversification. These are the growth engines of a long-term ETF portfolio and are perhaps the most important element of your long-term portfolio.

As we kick off 2024, we look at the two big players in the UK market: the Vanguard FTSE All-World UCITS ETF and the iShares MSCI ACWI UCITS ETF. Both aim to do the same thing: capture total global stock market returns.

There is not much to choose between them. Their returns are almost identical and you can’t go wrong with either. However, for many people this will be the biggest investment they make, so it’s worth understanding how they work and what to expect.

Top 2 Global Equity ETFs for UK Investors

FTSE vs MSCI: A Global Index Showdown

Even though their respective approaches to indexing the global stock market are slightly different, the difference in performance between the FTSE All-World Index and the MSCI ACWI Index is negligible.

The MSCI ACWI Index

ACWI stands for All Country World Index, and is designed to capture the performance of large and medium-sized companies across 23 developed and 27 emerging market countries. With over 3,000 constituents, the index covers approximately 85% of the global stock market.

Key Features:

• Large and Mid-Cap Focus: The MSCI ACWI is heavily weighted towards large and mid-cap stocks, offering a comprehensive representation of these segments.
• Emerging Markets Exposure: While it includes significant exposure to emerging markets, the weight is less compared to developed markets, reflecting a conservative approach towards riskier economies.
• Sector Diversification: The index is well-diversified across sectors, but currently with a notable emphasis on technology and financial sectors.

The FTSE All-World Index

The FTSE All-World Index is another widely respected global index, encompassing large and mid-cap stocks from both developed and emerging markets. Covering over 90% of the global investable market, the index includes about 3,900 stocks from over 50 countries.

Key Features:

• More Balanced Market Cap Representation: Unlike the MSCI ACWI, the FTSE All-World provides a more balanced selection across different market caps, including a good allocation to smaller mid-caps.
• Wider Emerging Markets Coverage: This index offers better exposure to emerging markets.
• Sector Allocation: Its larger number of stocks means the FTSE All-World tends to have a more balanced sector allocation, reducing the over-concentration in specific sectors.

Comparative Analysis

• Market Coverage: The FTSE All-World Index offers wider coverage in terms of both company size and geographical distribution. It’s more inclusive of smaller economies and mid-sized companies.
• Risk Profile: The MSCI ACWI, with its tilt towards larger companies and developed markets, may be perceived as less risky compared to the FTSE All-World Index on some measures, although with poorer diversification.
• Performance Dynamics: The performance difference over the long-term is minimal. Given their different approaches, their performance will differ slightly depending on short-term market conditions. As you can see from the longer-term data, these variations average out over longer periods.

Sector Breakdown

Unsurprisingly, technology stocks dominate the global market and make up about a quarter of the total investments in these global equity ETFs. These ETFs are what’s known as market-cap weighted, which means that larger companies form a bigger slice of the pie. Since tech is currently the biggest industry in the world, technology shares own the lion’s share of the market.

The makeup of ETFs changes as industries rise and fall and market cycles come and go. As recently as 2007, it was the financial sector that dominated the world indices making up about 25% of the total. That year, the technology sector came in at about 10%.

Geographical Breakdown

US shares make up almost two-thirds of the global index. Currently this is largely thanks to the enormous tech behemoths that generate so much wealth. The market-cap weighted approach again shows where the money is in the global system.

To give you an idea of how these world ETFs have evolved over recent years, in 2007 US shares made up about 40% of the total. This shows how much the US economy has outperformed relative to the rest of the world over the last 15 years.

Global Equity ETF Fees and Charges

The two world stock ETFs featured above have very similar ongoing charges. At about 0.20% per year, they are among the cheaper options in this space. Competitors such as the Invesco FTSE All-World UCITS ETF have more recently undercut these with an ongoing charge of 0.15%. It’s a new ETF with only 6-months of performance data, but if it is successful at tracking the underlying index it will become a great low-cost option down the road.

These fees are, of course, just the cost of holding the ETF. You must also take into account platform fees which vary greatly. For long-term investors, minimising these fees is a crucial consideration as they will compound as your wealth grows. It is surprising just how much wealth can be lost to fees that seem small on a yearly basis, but build up over your lifetime of investing and end up costing you a staggering amount.

Accumulating vs Distributing Global ETFs

The difference between accumulating and distributing ETFs is covered elsewhere in more detail. Put simply, distributing ETFs pay the dividends collected into your investment account in cash, whereas accumulating ETFs reinvest that money for you automatically, buying you additional shares and growing your investment.

Global ETFs: The Core and Satellite Approach

There’s nothing particularly exciting about index ETFs, but that is kind of the point. Timing the market, picking the stocks or even the sectors that are going to outperform, is something even the professionals are rubbish at. Instant, comprehensively global diversification with a single investment that will track the world market is simple, easy and has beaten almost all actively managed funds over the long term.

But we get it – you might want a bit more excitement in your life. The core and satellite approach is a great way to scratch your active investing itch, to dabble in niche markets and satisfy your hunches. By holding, say, 70% of your investment wealth in a “core” portfolio made up of boring index trackers like world ETFs and global bond ETFs, you have the remaining 20% to splash about on high-risk bets or thematic causes close to your heart.

The core is your portfolio’s bedrock. If your speculative bets go wrong, the damage is limited and doesn’t destroy your wealth. And who knows, maybe you get it right and give your retirement a nice boost.

See our article on the core and satellite approach to ETF investing for a deeper dive into this strategy.

Conclusion

So, we’ve looked at the two big players in the global equity ETF space: the Vanguard FTSE All-World UCITS ETF and the iShares MSCI ACWI UCITS ETF. They’re both solid picks for tapping into the world stock market in that they’re pretty similar in what they offer, but it’s the little differences that might sway you one way or the other.

And remember, investing is not just about chasing excitement but building a sustainable and resilient portfolio. The core and satellite approach, with these global ETFs forming the cornerstone of your investments, allows you the flexibility to explore while maintaining a robust financial foundation.