If you have opened a PEA, life insurance or PER in recent years, you have inevitably come across its name: the MSCI World. This stock market index was designed in 1969 by the company Morgan Stanley Capital International (hence the name MSCI). A few years ago, investing in the stock market still meant choosing stocks one by one, paying an intermediary, and hoping not to have made a mistake. Thanks to MSCI World, it is possible to get rid of this. The promise: with a single product, you buy a share of the 1,400 largest companies in developed countries, in 23 countries.
All for very low management fees, generally between 0.10% and 0.50% per year. For comparison, an actively managed fund charges an average of 1.5 to 2% per year. For around ten years, the MSCI World has been meeting a massive success with individualswhich are exposed to it via ETFs (exchange-traded funds) replicating its performance. To the point of having become, for many wealth management advisors, the basic building block of a long-term equity allocation.
Global diversification in one line, yes, but…
The first argument in favor of this index is its diversification. Apple, Microsoft, Nvidia, LVMH, Nestlé, Toyota, Novo Nordisk… all the multinationals you know are well in the MSCI World, weighted by their market capitalization. Buying more than 1,400 companies individually to compose the index manually would be unthinkable for an individual: prohibitive brokerage feescomplexity of management, impossible to track. With a single ETF, you get exactly the same exposure, and the index automatically rebalances. When a company progresses, it mechanically gains more weight; when another falls, its weighting decreases. You have no decisions to make, no stock-picking to do, no company balance sheets to read.
Maxime Kugler, head of the financial offering at Altaprofits, an online wealth management broker, sums it up well: “MSCI World is a good gateway to global equity investing.” However, he has a reservation: “But he doesn’t not enough on its own to build a complete allocation ». Indeed, behind the promise of global diversification, the composition of the index can also be criticized. The United States alone accounts for 72% of MSCI World, Japan 5.7%, the United Kingdom 3.7%, and France… only 2.8%.
By purchasing an MSCI World ETF, you are therefore investing massively in the American economywhether we like it or not. And in the American economy, technology stocks dominate: Nvidia at the forefront with 5.7% of the index, followed by Apple at 4.7%, Microsoft at 4.5%, Amazon at 2.6%. The first ten lines alone represent almost 30% of the total index. This is not a fault in itself, it is the logic of the weighting – but it is important to know how to properly balance your portfolio.
MSCI World, not balanced enough?
“The MSCI World ETF is not magic: it remains exposed to developed country equity markets and remains sensitive at the risk of hyperconcentration »warns Maxime Kugler. This means that MSCI World alone is not enough for a balanced portfolio. And there are two reasons for this:
First, the MSCI World Index does not include emerging countries. China, India, Brazil or even South Korea (still classified as “emerging” by MSCI) are not included, even though they represent an increasingly important part of the world economy. The second: small caps are excluded. However, these are asset categories that can provide outperformance over the very long term.
For those who want to go further, there is a broader version of this index: the MSCI ACWI. The latter includes 27 emerging countries in addition to 23 developed countries, for a total of more than 3,000 companies. Its disadvantage: it is not eligible for the PEA, and its costs are slightly higher. For even more diversification, the MSCI ACWI IMI also includes small caps.
