This 'mega-index' represents a very simple idea; when investors are looking to diversify internationally why not buy into one tracker that follows a big, aggregate index of nearly all the developed world's stock markets? That's the idea behind global indices that track developed world markets.
There are two big rivals for the global index business – the most successful index family is based around an index called the MSCI World index which includes the UK market (about 10 per cent of total holdings). Its potentially more compelling rival is the FTSE World exc UK index – this index is enormously useful to British investors because most of us are already far too biased towards UK stocks and this index specifically excludes UK stocks. What’s even better is that both of these huge global index families are very diversified – in both cases you're buying into a portfolio of companies where the top three companies only comprise between 5 and 9 per cent of the total holdings. There is one downside, though – you are buying a heavy mix of US stocks which comprise between 40 and 50 per cent of total holdings.
FTSE World exc UK
| Top 10 index constituents | % |
|---|---|
| ExxonMobil Corporation | 1.53 |
| Microsoft Corp | 1.12 |
| Procter & Gamble Co | 0.77 |
| Nestle SA | 0.74 |
| Johnson & Johnson | 0.01 |
| Apple Inc | 0.01 |
| General Electric Co | 0.01 |
| International Business Machines Corp | 0.01 |
| JPMorgan Chase & Co. | 0.01 |
| AT&T INC. | 0.01 |
| MSCI Top ten World Holdings – December 2009 | |
Global Equity ETFs from iShares, Lyxor and DBX
| ETF fund | ETF Ticker | Currency | TER | INDEX |
|---|---|---|---|---|
| DBX MSCI World | XMWO | GBP | 0.45% | MSCI World |
| DBX FTSE All World Ex UK | XMXU | GBP | 0.40% | FTSE World |
| exc UK | ||||
| Lyxor ETF MSCI World | LWOR | GBP | 0.45% | MSCI World |
| iShares MSCI World | IWRD | GBP | 0.50% | MSCI World |
