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Risks and opportunities: MSCI World under the microscope of financial experts!
Find out why the MSCI World index is considered a key for long-term investments despite its US bias and what risks exist.
Risks and opportunities: MSCI World under the microscope of financial experts!
In the current discourse surrounding Exchange Traded Funds (ETFs), the focus is particularly on the risks of this form of investment. According to that Daily Mirror ETFs are usually considered safe and profitable. Nevertheless, there are increasingly critical voices pointing out that the MSCI World, the most important global ETF, contains an overwhelming majority of US companies and especially technology stocks. This raises questions about the risk structure of such an investment.
The MSCI World Index represents economic development in 23 industrialized countries and includes around 1,500 stocks. Even though the index is considered an indicator of the global economy, an analysis by Financial tip, that around 71% of the index shares belong to companies from the USA, while Japan follows with around 6%. Large US tech companies such as Microsoft, Apple and Amazon in particular have a significant influence on index performance. This could result in investors facing a high level of dependence on the performance of these companies.
MSCI World Risks and Returns
MSCI World critics note that about 29% of major U.S. companies' revenue comes from international markets, meaning companies like Apple aren't based solely on the U.S. market - 58% of their revenue comes from Europe, Asia and other regions.
Although the MSCI World does not consist exclusively of US companies, the high proportion of American companies cannot be ignored. The existence of an MSCI World ex-USA is also pointed out, which excludes US shares but offers lower returns (4.9% p.a. compared to 9.6% p.a. for the MSCI World). However, the MSCI World tends to offer lower risk than individual investments due to its diversification into 1,500 companies.
In terms of long-term returns, the MSCI World has delivered an average return of 7.8% p.a. over the last five years, while the MSCI All Countries World Index (ACWI) is at 7% p.a. However, the MSCI World remains riskier than money market accounts, but offers a realistic chance of outperforming inflation over the long term. Between 2010 and 2022, the index achieved an average return of around 10% p.a. despite global crises.
The current discussion emphasizes the need for a long-term investment strategy over at least ten years in order to better withstand market fluctuations and the associated risks and to ensure stable asset growth.