What Is the MSCI All Country World Index (ACWI)?
Investors looking to create a diversified stock portfolio would be hard-pressed to find a more comprehensive solution than the MSCI All Country World Index (ACWI). The ACWI includes a diverse portfolio of micro- to large-cap equities in developed countries and small- to large-cap equities in emerging market countries.
The ACWI is maintained by Morgan Stanley Capital International (MSCI). Morgan Stanley is a leading provider of investment decision support tools to clients ranging from large pension plans to boutique hedge funds. Capital International (CI) is a different firm that developed international indices and in 1986, Morgan Stanley bought the marketing rights to its data. Many exchange-traded funds (ETFs) use these indices as a basis for their holdings, which has made the acronym ubiquitous in the financial markets.
Why Investors Use the ACWI
Investors use the MSCI All Country World Index (ACWI) in a number of different ways. First, the ACWI offers an easy and measurable way for investors to diversify globally. Institutional investors can measure implied bets, quantify home biases, and ensure a fully diversified portfolio, while individual investors can purchase global diversification in a single fund that's based on the ACWI.
Second, institutional investors often use the ACWI as a benchmark for their own portfolios. For instance, pension funds may have a mandate saying they must be globally diversified. Their holdings are then compared to the ACWI to determine if they meet those objectives. Individual investors can use the same benchmarks to compare different funds to see which offers the best risk-adjusted return.
Popular Variations of the ACWI
Morgan Stanley Capital International (MSCI) has a number of different variations of its All Country World Index (ACWI). Choosing the right variation depends on the situation. For instance, a U.S. investor looking to diversify into international stocks may want to choose an ex-U.S. index version of the popular index, since they already have exposure to U.S. equities.
The three most popular variations are:
- MSCI ACWI Investable Market Index (IMI): The IMI covers approximately 9,000 securities across large-, mid-, and small-cap segments, and across style and sector segments in 45 developed and emerging markets.
- MSCI ACWI All Cap Index: The All Cap Index covers approximately 14,000 securities including large-, mid-, small-, and micro-cap developed markets together with large-, mid-, and small-cap segments of emerging markets.
- MSCI ACWI Ex Indices: The Ex Indices are used to exclude certain countries—usually the primary investor's home country—since these investors may already have significant exposure to their own country.
International investors should choose the variation that best suits their portfolios by taking into account their existing exposure to certain markets as compared to their target levels of exposure. In the case of individual U.S. investors, the ex-US index may be the most appropriate when looking to build an international-only component to their otherwise domestic portfolio.
How to Invest in the ACWI
The easiest way for individual investors to gain exposure to the All Country World Index (ACWI) is through ETFs. Many different ETF providers use the ACWI in various forms, which means there are many different options available. But the three most popular providers are:
- iShares MSCI ACWI Index Fund (ACWI)
- iShares MSCI ACWI ex-US Index Fund (ACWX)
- SPDR MSCI ACWI ex-US ETF (CWI)
Since these funds use the same core index, investors should consider expense ratios and liquidity when deciding on the best option. Expense ratios are important to consider since they directly affect annual reports, while liquidity is important to consider, especially when investing in shorter time horizons where timely selling is important.
Some Alternatives to the ACWI
While the MSCI All Country World Index (ACWI) may be the most popular, there are several other indices used for global exposure, too. The two most popular alternatives are the Financial Times Stock Exchange (FTSE) All World Index and the S&P World Index, which offer similar diversification and have multiple associated ETFs for individual investors.
Some popular all world ETFs include:
- Vanguard International FTSE All World ex-US ETF (VEU)
- Vanguard International Total World Stock Index ETF (VT)
- iShares S&P Global 100 Index (IOO)
- Vanguard FTSE All World ex-US Small Cap ETF (VSS)
- Vanguard Total International Stock ETF (VXUS)