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MSCI All Country World Index (ACWI)

A global equity index that measures the equity performance in both the developed and emerging markets

What is the MSCI All Country World Index (ACWI)?

The MSCI All Country World Index (ACWI) is a global equity index that measures the equity performance in both the developed and emerging markets. By the end of 2019, it covers more than 3,000 stocks globally. It is a market capitalization-weighted index developed by MSCI Inc., a publicly-traded U.S. financial company.

 

MSCI All Country World Index (ACWI)
Fig. 1: MSCI ACWI Index Market Allocation

 

In addition to the ACWI, MSCI also publishes many other indices that cover different geographical regions and sectors. The EAFE (Europe, Australasia, and the Far East) Index and the GCC (Gulf Cooperation Council) countries index are some of MSCI’s indices.

 

Summary

  • The MSCI All Country World Index (ACWI) measures the equity performance of more than 3,000 stocks from both developed and emerging markets.
  • The MSCI ACWI can be used as a benchmark to evaluate the performance of a global equity portfolio.
  • Some ETFs track the performance of the MSCI ACWI, which allows investors to invest globally with low costs.

 

Understanding the MSCI All Country World Index (ACWI)

The MSCI All Country World Index covers the large-cap and mid-cap stocks from 23 developed markets and 26 emerging markets across 11 sectors. It comprises the markets form both the MSCI World Index and the MSCI Emerging Market Index. Thus, the MSCI provides a more comprehensive observation of the global equity market as a whole, which makes the index one of the most widely used global equity indices.

 

MSCI All Country World Index (ACWI) - Components

 

The MSCI ACWI consists of around 85% of the free-float market capitalization of every market that it covers. The wide coverage and carefully-designed methodology support the index to reflect the fluctuations among different sectors, sizes, styles, and geographical areas.

 

MSCI World Index and MSCI Emerging Market Index

Similar to the MSCI ACWI, the MSCI World Index is also a global equity index that comprises stocks across different countries and sectors. The major difference is that the World Index focuses on the developed markets. It covers more than 1,600 stocks from 23 developed countries and regions, such as Australia, Canada, Hong Kong, Finland, and Japan.

With a relatively lower correlation between the performance of the emerging market and the developed market, emerging market equity investing provides the benefit of diversification. Some emerging markets also have high growth potentials, as the countries are developing rapidly.

The MSCI Emerging Market Index measures the equity performance of the emerging markets around the world. It covers more than 1,100 stocks from 26 countries, including China, Russia, Mexico, South Africa, India, and some other developing countries. The MSCI Emerging Market Index is mostly made up of the markets of China, Korea, and Taiwan, weighted by 33%, 12%, and 11%, respectively.

 

Use of MSCI All Country World Index (ACWI)

Investing globally is one of the effective methods that investors can use to diversify their portfolios. By holding multiple stocks with low correlation among them in the same market, investors can lower the firm-specific risk (unsystematic risk), but the systematic risk remains.

Getting exposure to foreign equities can further diversify portfolios and reduce systematic risk. Thus, investors and portfolio managers seek investment opportunities in different countries. Market participants consider MSCI ACWI as an important tool for global investment.

The MSCI ACWI is often used as the benchmark to evaluate the performance of a global equity portfolio, especially for passive investments. A portfolio manager can compare the return and volatility of the portfolio with the index. Active return, information ratio, and tracking error are some of the gauges that can be used to evaluate how the portfolio performs relative to its benchmark.

Despite the diversification benefits of global investment, purchasing stocks from different countries and sectors can be costly and complex, especially for individual investors. It makes an exchange-traded fund (ETF) a favorable choice.

The iShares MSCI ACWI ETF (ACWI) tracks the performance of the MSCI ACWI. It holds around 2,200 stocks out of the more than 3,000 stocks from the index. Investors can receive the investment result of the MSCI ACWI with a small amount of capital and low costs by holding iShares’ ETF.

 

More Resources

CFI offers the Certified Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Capitalization-Weighted Index
  • Information Ratio
  • Tracking Error
  • Volatility Index (VIX)

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