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#15 Why not go all in on the MSCI World?

30.01.2024
Felix Niederer

The MSCI World ETF is one of the most popular ETFs among investors. But is it really a good strategy to bet everything on the MSCI World? We highlight four reasons not to.

In the world of investment, the question of why you shouldn't simply invest your entire capital in the MSCI World Index comes up again and again. At first glance, this doesn't seem like a bad strategy – but it has its pitfalls. In this podcast, Felix Niederer sheds light on the disadvantages of such a strategy.

1. Limitation to industrialized countries

The MSCI World Index is something like the SMI of the world. It is a global equity index that tracks the performance of around 1'600 companies from 23 industrialized countries. For historical reasons, however, it does not reflect the entire diversity of the global economy. It is limited to the so-called developed industrialized countries. Emerging markets such as Brazil, India and South Africa are not included. This means that investors miss out on the opportunity to benefit from developments in these emerging markets.

2. Only the largest players are represented

Another aspect to consider is the high threshold for inclusion in the MSCI World Index. As only the 1'600 largest companies are represented, the market capitalization for inclusion is relatively high. Companies with a market capitalization of less than 1.7 billion Swiss francs are not included in the index. As a result, many companies that are represented in the SPI are not included in the MSCI World Index. This means that investors miss out on potential opportunities in smaller but up-and-coming companies.

3. No diversification across asset classes

It should also be noted that the MSCI World Index is limited exclusively to equities. Other asset classes such as bonds, commodities and real estate shares are not included. So if you invest all your capital in the MSCI World, the risk is concentrated in a single asset class. However, a balanced portfolio should be diversified across different asset classes in order to spread risk and achieve more stable returns over the long term.

4. Unchangeable regional mix

The regional mix in the MSCI World Index cannot be changed, either. The weighting of the regions results from their global market capitalization and cannot be influenced by the investor. However, the optimal mix of regions should be based on individual risk tolerance and the investments already made. The MSCI World Index lacks this flexibility, which can lead to a suboptimal portfolio composition.

Diversification through different building blocks

If you want to diversify your portfolio across different asset classes and not just focus on the largest global companies, you should look beyond the MSCI World Index. ETFs and index funds offer a wide range of building blocks that make it possible to invest specifically in different sectors, geographical regions and asset classes. This not only opens up new opportunities, but also creates a more robust basis for long-term investments.

Do you invest in the MSCI World Index? Let us know your thoughts and experiences via e-mail.

Disclaimer: We have taken great care with the content of this article. Nevertheless, we cannot exclude the possibility of errors. The validity of the content is limited to the time of publication.

About the author

author
Felix Niederer

Founder and CEO of True Wealth. After graduating from the Swiss Federal Institute of Technology (ETH) as a physicist, Felix first spent several years in Swiss industry and then four years with a major reinsurance company in portfolio management and risk modeling.

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