World Index Overview
💡Take Away
- Many indices determine inclusion based on market capitalization or stock value.
- Global indices, such as the MSCI All Country World Index (MSCI ACWI) or the FTSE All World Index, are weighted by market capitalization.
- The MSCI ACWI, published by Morgan Stanley Capital International, includes approximately 2,900 companies.
- The FTSE All World Index, from the Financial Times Stock Exchange Group (FTSE), consists of about 3,900 companies.
- Many global indices have a high proportion of U.S. companies due to the large number of high market capitalization firms in the U.S.
- Index providers also offer specialized indices focusing on emerging markets, Europe, and small-cap companies.
What is a World Index?
A world index is an index composed of (stock) assets from around the world.
- If an index provider weights exclusively by market capitalization, the result is a strong focus on North America.
- You can also weight your world portfolio according to economic performance, measured by Gross Domestic Product (GDP).
The selection of the index on which your ETF is based is already a decision for a specific perspective on the global economy, which significantly influences performance.
World indices are typically divided into developed and emerging markets.
Well-Known World Indices in Comparison
Global Indices
| Index | Description |
|---|---|
| MSCI ACWI | The MSCI All Countries World Index tracks over 2,900 stocks from 23 developed and 24 emerging markets. The share of emerging market stocks is around 10%. U.S. companies have the largest weight, making up approximately 60% of the index. |
| FTSE All-World | The FTSE All-World Index includes around 3,900 stocks from approximately 50 countries, covering large- and mid-cap companies. It weights companies based on market capitalization. |
Major Global Indices
| Index | Description |
|---|---|
| MSCI World | The MSCI World Index (Morgan Stanley Capital International World Index) is a key stock market indicator reflecting global economic development. It includes over 1,600 stocks from 23 developed countries. |
| FTSE Developed World | This index tracks around 2,100 individual stocks. Although it includes more companies than the MSCI World, its performance is similar, as the additional stocks are mostly smaller companies. |
| MSCI Emerging Markets | The MSCI Emerging Markets Index tracks around 1,200 large- and mid-cap stocks from 24 emerging markets. Stocks are weighted based on free-float market capitalization and currently account for around 13% of the global market capitalization. Combined with the MSCI World, it provides comprehensive global stock market exposure. |
| FTSE Emerging Markets | The FTSE Emerging Markets Index tracks approximately 1,700 large- and mid-cap stocks from 24 emerging markets. The stocks included represent about 13% of global market capitalization. |
| Stoxx Europe 600 | The Stoxx Europe 600 is a regional European index rather than a global one. Provided by the Swiss index provider Stoxx, it includes 600 companies that represent over 90% of the European market capitalization, covering small-, mid-, and large-cap stocks. A Europe-focused index can help reduce the U.S. dominance in a portfolio. |
| MSCI World Small Cap | The MSCI World Small Cap Index tracks small-cap companies from developed markets. It can serve as a valuable complement to a global portfolio by adding exposure to smaller firms. |
MSCI vs. FTSE
Both Morgan Stanley Capital International (MSCI) and Financial Times Stock Exchange (FTSE) offer comparable indices: The MSCI World is similar to the FTSE Developed World, as are the MSCI Emerging Markets and FTSE Emerging Markets. The same applies to the MSCI ACWI and FTSE All-World.
Product Comparison:
| Product | Morgan Stanley Capital International (MSCI) | Financial Times Stock Exchange Group (FTSE) |
|---|---|---|
| World Index | MSCI ACWI (approx. 2,900 stocks in 48 countries) | FTSE All-World (approx. 3,900 stocks in ~50 countries) |
| Regional Index for Companies from Developed Countries | MSCI World (approx. 1,600 stocks in 23 countries) | FTSE Developed World (approx. 2,100 stocks from 26 countries) |
| Regional Index for Companies from Emerging Markets | MSCI Emerging Markets (approx. 1,300 stocks in 24 countries) | FTSE Emerging Markets (approx. 1,700 stocks from 24 countries) |
The biggest difference: weighting of different regions and the decision about which countries are included in which index
- For FTSE, South Korea falls under the category of developed countries and is therefore part of the FTSE Developed World Index. MSCI classifies the country as an emerging market, so it appears in the MSCI Emerging Markets index.
- What will be particularly interesting in the future is the classification of China. Currently, both providers classify the world’s second-largest economy as an emerging market.
Ultimately, the choice between MSCI and FTSE comes down to personal preference and cost considerations. Regardless of your decision, make sure NOT to mix the two index providers, or important positions may become overweighted or excluded.
For more detailed comparison, check out this video: