MSCI World Index: How to invest in the world’s biggest companies
If you only invest in the domestic capital market, your growth potential may be limited and the level of risk may increase. This is why many investors have been looking to diversify their portfolios and explore opportunities in global markets. Of all these options, the MSCI World Index is particularly notable: it provides a way to invest in some of the world's largest companies and offers diversification and the potential for growth.
But what lies behind this index? Why is it so popular among those seeking international exposure? And most importantly, how can you start investing in a practical way? Find out why the MSCI World Index is a valuable addition to your investment portfolio, and how to get started.
What is the MSCI World Index?
The MSCI World Index is a stock index that tracks the performance of 1,500 large- and mid-cap companies in 23 developed countries, including the United States, Japan, the United Kingdom, France, and Germany. With an average annual growth rate of around 10.32% over the last 46 years, it is a widely used benchmark for investors seeking diversified international exposure.
Historical performance of the MSCI World Index (in EUR)
Source: Curvo
The index covers a range of sectors, including technology, consumer goods, healthcare, industry and energy and includes companies such as Apple, Microsoft and Nestlé. Each company’s weighting is determined by its market capitalisation and the number of its shares available for trading (free float). Although it does not include emerging markets, its sectoral and geographical diversity helps to mitigate the risks associated with specific markets or sectors.
Annual returns of the MSCI World Index
Source: Curvo
One of the most straightforward ways to gain exposure to hundreds of leading companies in their respective sectors is to track this index. This can be done through an investment fund, an ETF that replicates it, or even by investing directly in the largest companies that comprise it.
Why should you track the MSCI World Index?
For many investors, tracking the MSCI World is an efficient way to access global markets without having to make dozens of individual decisions. These are some of the main advantages associated with this index:
Immediate international diversification
By tracking the MSCI World Index, your capital is distributed across more than 1,500 companies in 23 developed countries. This reduces the risk of exposure to a specific economy or sector, while enabling you to track the growth of several geographies simultaneously.
Exposure to the world’s largest companies
The index includes many of the world’s leading companies in their respective sectors, such as Apple, Microsoft, Nestlé, Johnson & Johnson, and Toyota.
Efficiency and simplicity
By investing in a fund or ETF that tracks the MSCI World Index, you can access a globally diversified and professionally managed portfolio without having to make constant buying and selling decisions. This is a practical solution, particularly for investors with a long-term outlook.
Monitoring and transparency
As it is a widely followed and replicated index by investment funds and analysts around the world, it is easier to follow its performance, understand its variations, and find reliable information on its evolution.
What makes up the MSCI World Index?
In order to be included in the MSCI World Index, a company must fulfil a number of specific criteria. Firstly, it must be listed in one of the 23 developed markets recognised by MSCI, such as the United States, Japan, the United Kingdom and Germany.
Composition of the MSCI World Index by company rating level
Source: MSCI
In addition, it only includes large- and mid-cap companies. However, size alone is not enough. A company must also have a significant proportion of its shares available for trading on the market, a concept known as "free float”. The index does not include companies with a high concentration of shareholders.
Another key point is liquidity: shares must be traded frequently enough to reflect realistic prices. To keep the index up to date, MSCI carries out periodic reviews (usually quarterly) to adjust its composition and ensure it continues to reflect the largest companies in developed countries.
Limitations of the MSCI World Index
Although investing in the MSCI World Index has its advantages, it is not without risk. It is important to understand these risks in order to make informed decisions and manage expectations effectively.
Geographical concentration
Although it is a global index, the United States accounts for more than half of its weight. This means that the performance of the MSCI World depends heavily on the US economy and the companies listed on its stock exchange, particularly the large technology companies.
Absence of emerging markets
The index excludes major economies such as China, India and Brazil. Investors looking for exposure to these regions will need to consider alternative options.
Stock market volatility
As with any investment in stocks, the MSCI World is subject to market volatility. Although the investment is diversified, its value fluctuates, particularly during periods of global economic uncertainty.
Exchange rate risk
Investing in a global index involves implicit exposure to different currencies, including the US dollar, Japanese yen and British pound. Fluctuations in exchange rates can have a significant impact on the final return.
What is the practical approach to investing in the MSCI World Index?
Investing in the MSCI World Index can provide exposure to some of the world's largest companies through a single investment. To get started in a safe and practical way, follow these steps:
1. Define your objectives and time horizon
Before you start, think about what you want to achieve. Are you looking for long-term investment? Are you prepared for market fluctuations? Knowing the answers to these questions will help you decide on the best way to enter the index.
2. Choose the right product in which to invest
One way to invest in the MSCI World Index is through an ETF (Exchange-Traded Fund) or an investment fund that tracks the performance of the index. Although both aim to track the performance of the MSCI World, they work in different ways:
• ETFs: these are traded on the stock exchange like shares. Their prices change throughout the day and allow you to track the index almost in real time;
• Investment funds: you can subscribe to these through a financial institution, and the value of the investment unit is usually updated once a day. They provide a simpler experience, with subscriptions and redemptions being made directly through the management entity.
3. Open an account with a broker or bank that offers these products
To purchase ETFs or investment funds that replicate the MSCI World Index, you will need to open an account with a broker or a bank offering access to these international products.
Developed by Banco Carregosa, the GoBulling is the ideal platform for investing in MSCI World shares in a simple way. Its intuitive, customisable interface provides access to global market shares, performance analysis tools and real-time notifications, allowing you to keep track of companies in the index.
4. Choose the fund or ETF that best matches your profile
There are several options on the market that replicate the MSCI World, which differ in terms of management, dividend distribution frequency and currency. The most important thing is to choose a product that aligns with your investment objectives.
5. Make your first purchase
Now that your account is open and you have chosen the product, it’s time to purchase the investment fund units or ETF shares. You can do this either via your broker’s or a bank’s online platform, or with the help of a financial adviser.
6. Monitor your investment and don’t lose focus
Investing in the MSCI World Index is a medium- to long-term strategy. Monitor performance periodically, but avoid making rash decisions based on short-term market fluctuations. A long-term approach usually yields better results.
7. Consider adding this investment to a diversified portfolio
While the MSCI World Index is an excellent basis for global diversification, you should always consider combining this investment with others that align with your investor profile and objectives. Having a balanced investment plan helps you to manage risks and take advantage of opportunities.
8. Rely on professional support to maximise results
Having a trusted partner to manage your assets can make a big difference. At Banco Carregosa, you can rely on personalised advice to help you select the most suitable products and develop a strategy that aligns with your profile and goals.
Alternatives to the MSCI World Index
Although the MSCI World is a robust and fairly complete index, it is not the only way to achieve global diversification. Depending on your objectives, risk profile and geographical preferences, there are other options that could complement or even replace an investment in this index.
MSCI All Country World Index (ACWI)
If you’re looking for a more comprehensive version of the MSCI World Index, the MSCI ACWI could be a good alternative. This index includes the 23 developed markets of the MSCI World as well as emerging countries such as China, India, Brazil, South Africa and Mexico.
This is a straightforward way to gain global exposure through just one position, covering almost all economically significant regions. While there is an inherent risk due to instability in some of these markets, it also offers greater growth potential.
Regional or thematic indices
Another way to achieve diversification is to focus on specific regions. For instance, you could invest in the MSCI Europe, MSCI USA or MSCI Japan indices. This approach offers greater control over geographical allocation, which can be beneficial for those looking to increase their exposure to a particular sector of the economy.
You can also invest based on specific themes or sectors, such as technology, healthcare, clean energy and artificial intelligence. Many ETFs track these thematic indices, offering the potential for higher returns but also greater volatility.
Multi-asset funds and discretionary management
If you prefer a more balanced approach, consider multi-asset funds, which combine global equities, bonds, liquidity and sometimes alternative assets. This solution reduces exposure to market risk, making it more suitable for those with a more conservative profile.
Another option is to use management services such as those offered by Banco Carregosa. These services offer customised portfolios that take into account your assets, objectives and risk tolerance. MSCI World may be one of the building blocks in this case, but it is not necessarily the only one.
Invest with confidence in the MSCI World Index with Banco Carregosa
The MSCI World Index offers a straightforward and effective means of gaining exposure to some of the world’s largest companies through a single investment. However, to make the most of this opportunity, you need experienced guidance and solutions that are tailored to your specific requirements.
At Banco Carregosa, we combine in-depth market knowledge with a personalised approach to help investors incorporate the MSCI World Index into a robust global investment strategy that aligns with their financial objectives.
Whether you’re taking your first steps in wealth management or looking to expand your portfolio, we are here to help you turn global opportunities into tangible, long-lasting results.
Talk to us to find out how investing in the MSCI World Index could inform your next investment decision.