A depiction of a well-balanced MSCI World Stock Index
Diving into the Equal-Weighted MSCI World ETF
Curious about an investment that distributes its holdings evenly? Let's discuss the MSCI World Equal Weighted ETF!
Two Equally-weighted Stock ETFs on the Scene
There are limited options for stock ETFs with equally weighted holdings available today. For example, the Xtrackers S&P 500 Equal Weight ETF splits its holdings among the top 500 US stocks, while the Ossiam Stoxx Europe 600 ESG Equal Weight ETF does the same with 600 stocks from the Stoxx Europe 600 Index.
But Where's the MSCI World Equal Weighted?
Investors can't yet grab an equally-weighted ETF on the MSCI World Index, although MSCI already crunches numbers for the MSCI World Equal Weighted Index. In this version, US stocks account for only 40.8% of the portfolio, compared to the MSCI World Index's 69.5% dominance.
A Different Slice of the Tech Pie
When it comes to the tech sector, the MSCI World Equal Weighted Index pales in comparison to the MSCI World Index, with only a 11.9% weight versus 22.1% for the latter.
Sharing the Wealth Among the Apple, Microsoft, and Amazon Giants
The most significant difference lies in the individual stocks. For instance, the MSCI World Index has Apple, Microsoft, Amazon, Tesla, and Alphabet A as its top five holdings, making up 13.9% combined. On the other hand, these heavyweights must split a mere 0.33% in the MSCI World Equal Weighted Index, with each one accounting for just 0.066% of the index.
Important Note: The author owns positions in some of the financial instruments mentioned in this article: Amazon, Apple.
Geographical, Sector, and Individual Stock Comparisons
Let's get a closer look at how the MSCI World Equal Weighted ETF differs from the traditional MSCI World Index.
MSCI World Index
Geographical Distribution:A broad range of developed markets including North America, Europe, and Asia-Pacific regions are covered. The U.S. is typically the largest component, followed by the UK, Japan, and Canada.
Sector Distribution:Sector distribution varies but is generally dominated by Technology, Financials, Consumer Staples, Healthcare, and Industrials.
Individual Stock Holdings:These are heavily weighted toward large-cap companies, with significant holdings in firms such as Apple, Microsoft, Amazon, and other major players.
MSCI World Equal Weighted ETF
Geographical Distribution:The equal-weighted ETF offers a more even allocation across the same geographies as the MSCI World Index, providing proportionally larger representation to smaller countries and companies compared to the market capitalization-weighted index.
Sector Distribution:By distributing equal weight to each stock, this approach leads to a more balanced sector distribution, potentially offering more exposure to smaller sectors and reducing concentration in Tech and Financials.
Individual Stock Holdings:Each stock in the portfolio assumes a similar weight, irrespective of its market capitalization. Small-cap companies in sectors like Industrials or Consumer Discretionary could thus have a similar weight to large-cap companies in Tech or Financials, promoting diversification across various companies.
In summary, while both indexes share similar geographies and sectors, the MSCI World Equal Weighted ETF delivers more balanced and diversified holdings by allocating equal weight to each stock, instead of relying on the market capitalization-weighted approach of the MSCI World Index. Some possible holdings include Singapore Technologies Engineering Ltd, E.ON SE, and Thales, each with a similar percentage weight of around 0.11%, whereas the MSCI World Index leans heavily toward companies like Meta Platforms and Alphabet.
The Pros and Cons of a Balanced Portfolio
The equal-weighted approach offers more balanced exposure to all regions and sectors, potentially resulting in less volatility from large market-cap stocks. While this strategy may deliver higher returns in periods when smaller or mid-cap stocks perform well, it might also incur higher volatility. As always, your investment strategy, risk tolerance, and market conditions should influence your choice between these two types of investments.
- The MSCI World Equal Weighted ETF, unlike the MSCI World Index, provides a more even allocation across geographies, offering larger representation to smaller countries and companies compared to the market capitalization-weighted index.
- By distributing equal weight to each stock, the MSCI World Equal Weighted ETF leads to a more balanced sector distribution, potentially offering more exposure to smaller sectors and reducing concentration in Tech and Financials.
- In the MSCI World Equal Weighted ETF, each stock in the portfolio assumes a similar weight, irrespective of its market capitalization, promoting diversification across various companies.
- The MSCI World Equal Weighted ETF delivers more balanced and diversified holdings by allocating equal weight to each stock, instead of relying on the market capitalization-weighted approach of the traditional MSCI World Index, where holdings are weighted towards large-cap companies.
