November 13 2021


I – Global information and fundamental analysis about MSCI World

An exchange traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index. In this report, we’ll focus on the MSCI World Index.

Stock market indices are particularly sought after assets by investors because of their liquidity, high volatility and the significant amount of information that can be found about them on the internet. Most of the stock market indices that you can trade online are linked to the economy of a particular country or industry, but there are global indices that cover several countries. The best known of these indices is the MSCI, which itself is broken down into several sub-indices depending on the group of countries involved. Here is some information and advice on how to analyze the MSCI.

Chart 1 : MSCI Historical performance

Source : MSCI

The abbreviation MSCI actually stands for « Morgan Stanley Capital International ». As the name suggests, it is the US-based company Morgan Stanley that is responsible for its calculation.

But the MSCI is not really a single index but rather a group of benchmarks among the most used in the world by stock market portfolio holders. In fact, apart from the MSCI World or MSCI Mondial, there are a large number of MSCI indices relating to groups of countries, countries or particular economic sectors. Each of these indices is itself associated with a series of sub-indices called « derivative indices » which take into account the size of the companies concerned (such as small cap or large cap), but also sometimes the management style of these companies (such as value or growth).

Chart 2 : Index Weight by countries

Source : MSCI

Chart 3 :  Index weight by sectors

Source : MSCI

In reality, investors who think that by investing in the MSCI World Index, they are investing in an index that is extremely diversified in all international stock markets are mistaken. In fact, in addition to the fact that not all countries in the world are actually included in this index, it should be noted that the components of this index are also weighted according to their size in the market. As a result, nearly half of the stocks in this index are American. In second place are Japanese stocks, which represent nearly 8% of the total. Then comes the United Kingdom with 5.6% of the stocks, France with 3.4% of the stocks, Switzerland with 3.2% of the stocks, Germany with 3.1% of the stocks for the main countries.

In the same way, as far as the sectors of activity represented in this index are concerned, there are two major sectors: finance and information technology, which together represent more than 35% of the MSCI World’s composition. Then there is the energy sector with 6% of the stocks and the real estate sector with 3% of the stocks.

When investing in the MSCI World index, you should pay special attention to the US market and to financial and IT companies.

Chart 4 : Differents MSCI

Source : MSCI

There are many, many MSCI indices. However, investors generally look to four of them: the MSCI Emerging Markets Index, the MSCI Developed Markets Index, the MSCI Frontier Markets Index, and the best-known of these, the MSCI World Index.

In conclusion, investing in MSCI World could be a good long term investment. You have to think about the index repartition of sector and country. Majority of the exposition would be in the USA, especially in the Technology sector. In the context of a possible rate hike, the technology sector is shaky despite recent better than expected results. The U.S. economic environment should be taken into account as it dominates the index weighting.

II – ETF Analysis

We have chosen to study a fund eligible for the PEA. We will focus on a Lyxor fund which has the MSCI World as its benchmark. The purpose of the index is to replicate the MSCI World total net return in USD.

Chart 5 : Historical Performance

Source : Lyxor

Chart 6 : Funds detail

Source : Lyxor

Chart 7 : Funds holdings

Source : Lyxor

The fund is well within the description of MSCI World. A fund that is clearly dominated by U.S. assets and U.S. technology-based companies. Let’s move on to the technical analysis.

To conclude, investing in the MSCI World means taking a relatively large exposure to the US and the technology sector. This ETF can also be used as a diversifier while retaining some exposure to the US.


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