Alternative ETFs in the MSCI World: Investors are now venturing into these options, stirring market activity
Taking on the MSCI World: Investment Options That Leave the Market in the Dust
The MSCI World, a staple for many ETF investors, has faced much criticism due to concentration risks and the absence of certain markets. And, during the recent market sell-off, these concerns have proven to be quite a problem. The index has shown a disproportionate loss compared to its alternatives.
But, there's a silver lining. Some index funds have outshone the MSCI World, and there's a chance they will continue to do so in the future. Let's dive into these promising alternatives:
Beating the MSCI World with Enhanced Variety
The MSCI World sell-off has resulted in a loss of approximately 3.0% in value since the start of the year, a relatively minor fluctuation. However, three other index funds have managed to exceed the MSCI World's performance:
SPDR MSCI ACWI IMI (Performance YTD: -2.5%)
The SPDR MSCI All Country World Investable Market UCITS ETF (WKN: A1JJTD) has exhibited slightly better performance than the MSCI World, making it a compelling choice. This index fund invests not just in industrial markets but also in emerging markets and small caps.
Investing in a wider range of markets could lead to this index delivering enhanced performance in the future, as concentration risks are reduced, and small caps and political risk premiums are reflected.
Gerd Kommer Multifactor ETF (Performance YTD: 0.8%)
The L&G Gerd Kommer Multifactor Equity UCITS ETF (WKN: WELT0A) has also surpassed the MSCI World. This is due in part to the capping of position and country weights in the fund, resulting in less investment in the heavily fallen US stocks.
Furthermore, the ETF could continue to perform well due to its focus on emerging markets and small caps, as well as its integrated multifactor approach.
Invesco FTSE 3000 RAFI ETF (Performance YTD: 2.1%)
The Invesco FTSE RAFI All World 3000 UCITS ETF (WKN: A0M2EN) has demonstrated the highest outperformance of all ETFs. The selection approach of this fund involves acquiring companies from industrial and emerging markets based on factors such as revenue, cash flow, book value, and dividends.
This approach could also lead to outperformance in the future, particularly since factor premiums like value and quality provide above-average returns in the long term.
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In the current market climate, these alternatives to the MSCI World Index have gained an edge for a number of reasons, including their emphasis on specific sectors or geographic regions that offer better growth prospects and resilience in the face of market volatility. Factors like fiscal stimulus, demographic trends, and favorable economic conditions contribute to their success.
In the current market landscape, the SPDR MSCI ACWI IMI, Gerd Kommer Multifactor ETF, and Invesco FTSE 3000 RAFI ETF have demonstrated superior performance compared to the MSCI World, offering investors options that diversify into emerging markets and small caps, which may lead to enhanced returns in the future due to their integrated multifactor approach, focus on specific factors such as revenue, cash flow, book value, and dividends, and the capping of position and country weights in the funds.
Finance plays a crucial role in these tech-driven investment strategies, as they utilize advanced algorithms and data analysis to minimize risk and maximize returns in the ever-changing global market scenario. These technology-driven index funds have garnered attention from investors due to their ability to outperform traditional market indices in challenging market conditions.
