MSCI World vs MSCI ACWI

The MSCI World index and the MSCI ACWI index are two popular global stock indices, which many index portfolios track. Although there are some important differences, the long-term performance has been nearly identical. Let’s take a look at MSCI ACWI vs MSCI World:

A quick note investors cannot invest directly in an index. These unmanaged indexes do not reflect management fees and transaction costs that are associated with an investable vehicle, such as the iShares MSCI ACWI ETF (symbol: ACWI) or the iShares MSCI World ETF (symbol: URTH). A reminder that these are simply examples as this site does NOT provide investment recommendations.

Historical Performance: MSCI World vs MSCI ACWI

Source: Bloomberg

When comparing the MSCI World vs MSCI All-Country World Index (ACWI), I was surprised by how closely they’ve tracked each other over the past 35 years (through June 30, 2022) since ACWI’s inception in 1987. The annualized difference is just .11%!

The MSCI World Index only includes stocks of developed markets (think the US, Western Europe, Japan, Canada, Australia, etc), while MSCI ACWI includes stocks in both developed and emerging markets (think China, India, Brazil, etc). Since emerging markets have bounced around between 10-15% of global market cap in the past decade or two (and were much smaller prior to that), the risk and returns of the MSCI World and MSCI ACWI indices have been nearly identical.

Current Index Composition: MSCI ACWI vs MSCI World

As of 9/30/2022, the geographic, market cap, and sector weights are quite similar.

  • The major difference is that the MSCI World is 100% developed markets, while MSCI is 88% developed markets and 12% emerging markets.
  • Even thought both indices are broad-based in terms of market capitalizations, both are market cap weighted and heavily tilted towards large-cap stocks.
  • Additionally, the MSCI ACWI and MSCI World have nearly identical sector weights.

Geographic Exposure

ACWI stands for All Country World Index and so the MSCI ACWI Index includes stocks from a broader set of countries than the MSCI World Index. The primary difference is the inclusion and exclusion of emerging markets.

Below are the top five country weights of the two indices, as of 9/30/2022. Note that China is not included in the MSCI World’s top holdings.

Market Cap Exposure

The MSCI ACWI Index is a much broader index with 2,900 constituents vs MSCI World’s 1,513 constituents (as of 9/30/2022). Not surprisingly, the mean and median market cap of ACWI constituents are much smaller than World’s. However, both indices are market cap weighted, so they up both being large-cap indices (which helps explain their near-identical performance).

Sector Weights

As of 9/30/2022, the sector weights on the two indices are very similar.

Conclusions

What does this mean for investors? Since the risks and returns of the indices are nearly identical, selecting an investment vehicle and cost structure may matter more than selecting the index. A fund investor might select MSCI ACWI due to the greater geographic diversification (especially with a large index fund that invests in local exchanges), while an SMA investor might opt for MSCI World due to cost considerations. Of course, the next 35 years could be completely different than the past 35 years!

Further Reading

Investors who want to compare a non-MSCI global index that has slightly different exposures from the the above indices, may want to evaluate the FTSE Global All-Cap Index vs MSCI ACWI Index.

Investors who want to see how the above comparison looks if US exposure is excluded should read my comparison of MSCI World ex-USA vs MSCI ACWI ex-USA.