Should we bet on American giants, favor global diversification or bet on artificial intelligence? Behind the three ETFs the most purchased by individuals hide very different levels of risk and diversification. Often presented as simple solutions for investing in the stock market, MSCI WorldTHE S&P 500 and the Nasdaq-100 yet rely on distinct investment logics.
The choice is all the more important as the performance gaps have been considerable in recent years. THE Nasdaq-100 significantly outperformed the S&P 500 and the MSCI Worlddriven by the rise of technology giants and artificial intelligence. But Arthur Mounier, wealth management advisor, warns against a common mistake. “Many savers only look at which index has risen the most before investing. However, an ETF is not chosen solely on its past performance, but also according to its level of risk and its investment horizon”he emphasizes.
Global diversification, American bet or technological conviction?
The differences in diversification between these three ETFs are major. THE MSCI World brings together more than 1,300 companies spread across 23 developed countrieswhile the S&P 500 brings together the 500 largest American companies and covers approximately 80% of US market capitalization. More concentrated, the Nasdaq-100 brings together around a hundred large non-financial companies, largely dominated by technology.
“ETF does not mean security. An equity ETF remains 100% exposed to the equity markets and therefore to their volatility”recalls Arthur Mounier. The advisor also invites us to put into perspective the image sometimes conveyed of MSCI World. “Many think about investing throughout the world while the index today remains very exposed to the United States”he emphasizes. US stocks now represent almost 75% of the index.
MSCI World remains the most diversified
However, the MSCI World remains the most diversified of the three indices studied. It offers exposure to several developed economies, where the S&P 500 and the Nasdaq-100 are exclusively oriented towards the American market. However, other specialists continue to recommend it to beginners for its simplicity.
Arthur Mounier, for his part, defends a different approach. “I prefer to look for specialized ETFs in each market. This makes it much easier to manage your allocation and distribution”he explains. This difference in construction can also come into play in the event of a correction in the American markets. “The one that will fall the least is the World because there is more sectoral diversification”estimates Arthur Mounier. Conversely, the Nasdaq-100 and the S&P 500 would be more exposed to a decline in major American stocks.
Which ETF for which profile?
The investor who seeks above all simplicity and relatively broad diversification will generally orient themselves towards MSCI World. A saver who wishes to invest regularly over the long term without following market news on a daily basis will be able to find a relatively simple solution to implement.
THE S&P 500 corresponds more to investors convinced of the ability of large American companies to continue to dominate the global economy. It allows you to focus on the United States while maintaining significant sectoral diversification thanks to its presence in technology, health, finance, industry and even consumption.
THE Nasdaq-100it is mainly aimed at the most offensive profiles. A 30-year-old saver investing for retirement in twenty or twenty-five years will be able to accept more volatility and devote part of his portfolio to this index with strong exposure to technology stocks.
The investment horizon above all
Contrary to popular belief, age is not necessarily the best indicator for choosing an ETF. “The real question is not the age of the investor but the moment when he will need to recover his capital”estimates Arthur Mounier. An investor of 25 years old who plans to use their savings in three years will not have the same strategy as a retirement who invests with a horizon of fifteen years. The longer this horizon, the more possible it becomes to accept the sometimes significant fluctuations in the stock markets.
As Arthur Mounier points out, the question is ultimately not which ETF has performed the best in recent years, but which one best corresponds to the objective pursued. Between global diversification, conviction on the American economy or bet on technology, each index responds to a different logic.
