Are There Truly Global Market Capitalization Weighted ETFs or Mutual Funds Including All Major Stock Exchanges?
The quest for a financial product that captures the returns of the entire global equity market has long puzzled investors. This includes the inclusion of all 60 major stock exchanges or even the select 16 in the trillion-dollar capitalization club. Fundamentally, investors are seeking a truly diversified investment option that mirrors the world's largest capital markets, ensuring both breadth and depth in their portfolios. In this guide, we delve into the reality of global market capitalization weighted ETFs and mutual funds, focusing on the key players in the market.
Understanding Market Capitalization Weighted ETFs and Mutual Funds
Market capitalization weighted ETFs and mutual funds are investment vehicles that allocate their assets based on the market capitalization of companies listed on an exchange. Companies with a higher market capitalization have a greater impact on the overall performance of the fund. These funds aim to replicate the performance of a broad market index, such as the SP 500 in the US, the FTSE 100 in the UK, or the Nikkei in Japan.
Key Players and Popular ETFs
The two most popular and widely recognized ETFs that come close to achieving the goal of global market capitalization weighting are the Vanguard Total World Stock (VT) and the SPDR MSCI ACWI ETF (ACWI). These funds serve as good approximations of the global market but come with certain limitations due to the nature of the underlying indexes.
Vanguard Total World Stock (VT)
Vanguard Total World Stock (VT) is a market capitalization-weighted ETF that offers exposure to over 8,000 securities from 45 countries, representing approximately 95% of the global equity market. It includes both developed and emerging markets, providing a comprehensive global equity exposure. Its performance closely mirrors that of the Market Capitalization Weighted FTSE Global All Shares Index.
Limitations of VT
While VT is a strong choice for global equity exposure, it does not include all 60 major stock exchanges. The underlying index primarily focuses on developed markets, with emerging markets comprising a significant portion. This means it may not cover some of the smaller stock exchanges, which could be important for investors seeking complete global diversification.
SPDR MSCI ACWI ETF (ACWI)
SPDR MSCI ACWI ETF (ACWI) provides exposure to nearly 2,000 companies across 23 developed and emerging market countries. The fund tracks the performance of the MSCI ACWI Index, which includes both developed and emerging market equity securities. The MSCI ACWI Index covers more than 94% of the global equity market and is market capitalization weighted, making it a suitable choice for broad global equity exposure.
Limitations of ACWI
While ACWI offers a broader geographic reach than other global ETFs, it still falls short of including all 60 major stock exchanges. The fund currently covers around 65% of the global market cap. Moreover, the exclusion of certain emerging markets might leave a gap in the representation of profitable growth opportunities in regions like India, South Korea, or Taiwan.
Evaluating the 1 Trillion Dollar Capitalization Club
The 1 trillion dollar capitalization club consists of the largest companies in the world, collectively representing a substantial portion of the global equity markets. These include companies from the US, Japan, and Europe, with giants like Apple, Microsoft, Amazon, Toyota, and Suzuki. Despite being significant, these companies are only a fraction of the global market but play a crucial role in driving the overall performance of marketcapitalization weighted indexes.
Key Players in the 1 Trillion Dollar Capitalization Club
The FTSE Global All Cap Index is one of the most comprehensive global equity indices in the market, covering around 98% of the global equity market. It is a market capitalization-weighted index that includes all stocks with current market capitalization data in more than 40 countries. However, it is designed to provide a broader market exposure rather than fully capturing every single stock exchange.
Limitations of FTSE Global All Cap Index
The FTSE Global All Cap Index, while comprehensive, still does not include all 60 major stock exchanges. The inclusion criteria for the index vary across different countries, and some exchanges may be excluded based on the available market data and liquidity. Therefore, investors seeking exposure to the global market may need to supplement their investments with additional strategies or products to achieve full geographic diversification.
Conclusion
In conclusion, while there isn't a single ETF or mutual fund that can claim to include all 60 major stock exchanges or even the select 16 in the trillion-dollar capitalization club, there are several investment options that come very close. ETFs like Vanguard Total World Stock (VT) and SPDR MSCI ACWI ETF (ACWI) provide broad exposure to the global market, covering the majority of major stock exchanges. The FTSE Global All Cap Index is another comprehensive option, but it too has limitations.
Investors seeking comprehensive global market exposure should carefully evaluate their options and consider the specific regions and markets that are most relevant to their investment goals. Supplementing these global ETFs with additional strategies or investments in specific regions could help achieve a more complete portfolio.