The Best All-World ETF: ACWI vs. VT

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Includes: ACWI, VT
by: Invest With An Edge

By John Schloegel

Want to own the world stock market with one trade? Are you a keep it simple stupid (KISS) investor? Tired of the daily spin regarding what to buy or sell? Then I have the answer for you. Two answers, actually, if you’re convinced the worldwide bear market is over. Both are nearly identical, but the benefit is owning the global stock markets in one neat and tidy package.

The iShares MSCI ACWI Index Fund (NASDAQ:ACWI) and Vanguard Total World Stock ETF (NYSEARCA:VT) are world stock market ETFs with global exposure to equities. We featured ACWI here on its first day of trading back in March 2008. It is an excellent product and has captured over $400 million in assets. VT is slightly smaller but still doing well in the asset race.

There are some slight differences between the two. VT’s expense ratio is 5 basis points less. It also has exposure to seven more countries than the iShares product. This is a minor point, however, since the top twenty countries represent approximately 95% of the index tracked for both funds.

ACWI is benchmarked to the MSCI All Country World Index, while VT tracks the FTSE All-World Index. There are 2,416 holdings in the MSCI World Index, while the FTSE All-World has 2,757 components. One key differential is that the iShares ETF attempts to track the index by using a sampling technique and holding just 702 securities (29%) as opposed to the Vanguard ETF which holds 2,748 securities (99%).

As for performance, since both are relatively new, we will look at YTD results thru 07/16/09. ACWI is +10.2% on a total return basis (including dividends), compared to a +10.3% advance for VT.

For now, ACWI seems to have an edge in liquidity, with the average daily value traded (ADVT) running about three times higher than that of VT. Checking bid/ask spreads a few times during the day reveals that they are pretty comparable.

Both ACWI and VT should appeal to the investor seeking a one ticket/one-way ride on the global equity market train. But if we have to declare which is best, we would have to give the nod to VT today. Its lower expense ratio and lower potential tracking error (due to larger number of stocks) gives it a slight advantage for investors seeking to own the world.

Disclosure: Our money management affiliate, Capital Cities Asset Management, was the first to buy 100 shares of ACWI on the day of its launch, and we still hold those shares today.