BGI's All World ETF Could Fundamentally Change the Way People Invest

By Matthew Hougan

The BGI All World ETF (ACWI) is very important. I'd go as far as to say that it could fundamentally change the way people invest.

Murray Coleman's point that you can buy the global markets using other, cheaper funds is true ... and it is just the kind of clever point I like to make when I analyze new funds. But it misses a bigger point.

What's important about these all-world ETFs is that they represent a new and better way for people to think about investing. No more U.S., international and emerging. These funds banish home bias in one fell swoop.

You want to invest in equities? Here's the opportunity set. For 35 basis points.

If you want to deviate from that, fine: go get ‘em, Tiger. But as soon as you do that ... if you, say, have 75% of your equity portfolio in U.S. stocks ... you're stepping away from the "market basket" and putting yourself at risk.

That's a message that's never gotten through to the majority of investors ... not in the U.S., the U.K., Japan or any other country.

Now is a risky time to buy foreign stocks, as they've had quite a run. But over the long haul, I'd bet money (in fact, I have, in my portfolio) that investors holding a globally diversified portfolio will do better than investors with a large home bias.

That's why these funds are important.

• More on choosing the right ETF

Comments

[TJ Machado:]

At 41% US exposure this is still too exposed to the US. A Purchasing Power Parity GDP would peg the US component of a global portfolio around 25%

2008 Apr 03 05:40 PM

[galeno:]

Most index fund or index ETF investors look at MARKET CAPITALIZATION of world stock markets---not at PPP-adjusted GDP.

That's why the USA gets approximately 40% of the world stock market allocation instead of 25%.

2008 Apr 04 02:38 PM

[Paisley:]

Agreed. Hopefully a world bond ETF is forthcoming as well as world cap-denominated ETFs (i.e. large-cap, mid-cap, and small-cap). This would make for a simple asset-allocation portfolio.

2008 Aug 23 07:48 PM

[Paisley:]

Agreed. Hopefully world bond and world cap-denominated ETFs will also be forthcoming. This would make for an ideal asset allocation portfolio.

2008 Aug 23 07:51 PM