Education • 4 min read
You probably often hear friends and acquaintances who are already more experienced with investing tell you to simply "invest in the MSCI World". In this article, you will find out what the MSCI is and why everyone is talking about it.
Are you interested in the world of investing and the stock markets? You're probably getting tips from friends and acquaintances who are already more experienced with investing for you to just "invest in the MSCI World". This article will tell you what the MSCI is and why everyone is talking about it.
Investing means putting an amount of money into a product with the aim of earning a positive return over time. For example, if you invest money in a stock, you own a part of a particular company and thus a part of the company's assets and profits.
Although the development of stock markets shows an upward trend on average over several years, not every single stock increases in value over time, of course. Some stocks gain more value, while others lose it.
For this reason, a diversification strategy,where risk is spread across companies in different growth phases and in different industries and countries, is very popular among investors and also highly recommended. You can read the basics on how to diversify your portfolio, i.e. your investments, in this article of the Bitpanda Academy.
Diversifying your portfolio is important because it allows you to spread your risk across multiple investments. This is where the MSCI World comes in: new investors often start with investment funds such as mutual funds or ETFs (exchange-traded funds), which are inherently diversified and tend to follow the general trends of the overall market.
A mutual fund is a professionally-managed investment made up of many individual securities that compiles funds from a group of investors to buy stocks, bonds or other assets. This is done to ensure a high degree of portfolio diversification and to spread risk more broadly.
The letters MSCI are the abbreviation for the financial services provider Morgan Stanley Capital International (the former full name of the company Morgan Stanley). The term "MSCI World" is often used synonymously in everyday life for funds that replicate a broad cross-section of global equity markets.
In fact, the MSCI World Index is a comprehensive global stock index that represents the performance of large-cap stocks (large public companies) and mid-cap stocks (of medium-sized companies) in all 23 industrialised countries.
Currently, the MSCI World covers approximately 85% of the free float-adjusted market capitalisation securities in 23 industrialised nations. The free float indicates the actual availability of stocks that can be acquired and held. Other MSCI Indices reflect the developments in the markets based on company size, regions, industries and other criteria or a combination of these.
These include the so-called “flagship index” MSCI ACWI (All Country World Index), which includes both industrialised nations and emerging markets, and the MSCI Emerging Markets Index, which replicates large-cap stocks and mid-caps from 27 emerging markets.
The name "MSCI World" for the MSCI World Index is somewhat misleading in this respect, as roughly 2/3 of the shares in the MSCI World are issued by companies from the USA, and this segment in turn includes the largest US players such as Apple, Facebook, Amazon, Microsoft, Google/Alphabet and more. Stocks from emerging markets and frontier markets are not included. The respective composition of the individual equity securities is reviewed and adjusted on a quarterly basis.
It is not possible to invest in an index directly, as it is a measure of change in value that replicates data such as prices. Therefore, investors who are told to "invest in the MSCI World" must invest in a securitised investment product such as an exchange-traded index, better known as an ETF ("exchange-traded fund"). Such an ETF replicates the performance of the relevant underlying Index.
With Bitpanda Stocks*, you can invest in ETFs such as the Developed World Stocks fractionally from as little as €1, commission-free and with tight spreads. This is made possible by derivative contracts covered by the underlying stocks and ETFs. The Developed World Stocks is an exchange-traded index fund (ETF) that replicates the performance of the MSCI World Index as closely as possible.
*Bitpanda Stocks enables investing in fractional stocks. Fractional stocks in Europe are always enabled via a contract which replicates the underlying stock or ETF (financial instruments pursuant to section 1 item 7 lit. d WAG 2018). Investing in stocks and ETFs carries risks. For more details see the prospectus at bitpanda.com.
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