Diversified exposure to world equity markets is often investors’ strategy of choice, allowing them access to the largest companies across the globe. There remains a variety of ways to do so and included in this selection are everyday global equity ETFs tracking the MSCI World index, but also some slightly esoteric options that match the needs of both risk-taking and risk-averse investors. This combines with a small-cap and income ETF to provide all the necessary core strategies alongside more adventurous products.
Dropped from the 2017 selection
SPDR MSCI World Small Cap (WOSC)
We still think this SPDR ETF is a good fund, but have removed it as a new and equivalent iShares product is cheaper, charging 0.35 per cent to SPDR’s0.45 per cent.
Vanguard FTSE All-World ETF (VWRL)
Likewise, no one on the panel had any problems with this Vanguard ETF. In 2017 this fund, which tracks the FTSE All-World index, was paired with an HSBC ETF that tracks the MSCI World index. The only real difference between these two indices is that the latter includes South Korea. While this is a relatively insignificant difference, South Korean exposure is available elsewhere in this selection. We removed the Vanguard fund as it was more expensive, charging 0.25 per cent to HSBC’s 0.15 per cent.
New list
HSBC MSCI World UCITS ETF (HMWO)
For core global equity exposure our panel strongly recommended keeping this HSBC product. The MSCI World index is the flagship index to track global stocks and with a 0.15 per cent charge this is the most long-term cost-effective way to do so. iShares offers a similar ETF that is substantially larger, with assets of £10.1bn to the £424m in the HSBC fund, and with a lower bid/offer spread. However, given this should be a core global equity option that would not be frequently traded, the fact that iShares charges double at 0.3 per cent means over the long term there is little doubt the HSBC ETF would provide better returns.
NEW: iShares MSCI World Small Cap UCITS ETF (WLDS)
Small-cap indices have generally risen higher than their all-cap and large-cap counterparts over the long term and the same is true when combining the world’s equity markets. This century, the MSCI World Small Cap index has risen 650 per cent compared with 224 per cent for the MSCI World index, so a dedicated allocation to global small-caps can often make sense. The panel recommended replacing the previous ETF from SPDR with this recently launched iShares fund. Despite having only launched in March, the iShares ETF has amassed £206m in assets – almost matching the £234m in the SPDR fund. Despite not having a performance track record, the panel felt iShares’ experience in running small-cap ETFs across the regions covered by the MSCI World Small Cap index stood it in good enough stead to be included. The ETF has an ongoing charge of 0.35 per cent compared with SPDR’s 0.45 per cent with a better bid/offer spread, making it the new standout option. Investors should be wary of the term small-cap in the context of global equities, however, with stocks in the index having an average market cap of $1.5bn (£1.1bn).
iShares Edge MSCI World Minimum Volatility UCITS ETF (MINV)
For those investors who would like equity exposure but are risk averse and dislike volatility, there are ETFs designed to reduce this. This iShares option was supported by the panel given its performance track record, cost, size and liquidity. It tracks an MSCI index that includes 331 large and mid-cap stocks, but weights them using risk metrics to provide the lowest absolute volatility. In times of growth, MINV should underperform, but it has the ability to provide a less bumpy ride in global equity investing. MINV has an ongoing charge of 0.3 per cent and assets under management of £1.1bn. It is not the cheapest ETF tracking this index, with an Xtrackers product charging 0.25 per cent, but this is prohibitively small.
NEW: Vanguard Global Value Factor UCITS ETF (VVAL)
As in the US, value stocks among global equities could be in the right economic environment to outperform. With that in mind the panel supports bringing in a global equity value ETF, with this Vanguard product being chosen for a variety of reasons. Vanguard describes this ETF as actively managed, in the sense that it does not simply track an index but uses quantitative analysis to pick and weight stocks based on their valuation – using price-to-book, price-to-earnings and estimated future earnings. Its benchmark is listed as the FTSE Developed All Cap index, but it does not aim to replicate this. Instead it compares itself with actively managed funds. Since launch in December 2015 the fund has outperformed its benchmark, and also the MSCI World Value index and the Investment Association Global sector fund average. With a 0.22 per cent ongoing charge, decent liquidity and a narrow bid/offer spread, this ETF is a strong new entrant.
NEW: iShares Core MSCI World UCITS ETF GBP Hedged (IWDG)
Even though global equity funds already invest across a range of geographies, the fact that over 40 per cent of exposure is in the US means some investors may still want to hedge away the currency risk. This ETF has been included to provide this and was selected as we rate it the best overall product in terms of cost, tracking ability and liquidity. It forms part of the wider iShares MSCI World ETF umbrella, which has over £10bn in assets, but this strategy itself has around £334m. Sterling hedged global equity ETF options are limited, and this was by far the best product in our view.
SPDR S&P Global Dividend Aristocrats UCITS ETF (GBDV)
This SPDR product was brought into the selection in 2017 due to its superior dividend growth, yield and underlying performance to replace a previous ETF from Xtrackers. At this stage, all of these factors remain in place and at a 0.45 per cent ongoing charge and a 3.38 per cent yield, this remains the strongest income option that is also liquid enough to buy and sell easily.
To view the IC Top 50 ETFs 2018 by category, please click on the links below:
Emerging market equities (four ETFs)
NEW: Sterling corporate bonds (two ETFs)
NEW: Global bonds (three ETFs)
Commodities and precious metals (three ETFs)
