You've heard about the MSCI World index and you're ready to invest. But with over 145 ETFs tracking this index, how do you choose the right one?
As Belgian investors, we faced this exact challenge. The sheer number of options felt overwhelming, and we knew that making the wrong choice could impact our returns.
That's why we've done the research for you. In this article, we'll guide you through five of the best MSCI World ETFs for Belgian investors, considering factors like tax efficiency, costs, and sustainability.
Why an MSCI World ETF is a great investment
The MSCI World is an index of about 1,500 stocks from 23 "developed" countries, like the US, Germany, and Japan. It was created by Morgan Stanley Capital International (MSCI). The index aims to reflect the performance of large and mid-sized companies.
The index is very diversified across North America, Europe, and parts of Asia-Pacific. Companies are selected based on their market cap. So, the bigger the company, the more important their weight is in the index. For example, at the time of writing, Apple and Microsoft together hold nearly 10% of the weight in the MSCI World. The USA accounts for about 70% of the index's market cap, vital for the global economy. Other key players include Japan, the UK, France, and Canada. The index only covers developed countries, excluding emerging nations like India and China.
The returns of MSCI World have also been excellent throughout the years. Since 1979, the MSCI World index has delivered an average return of 10.13%! If you had invested €10,000 in 1979, you would have had over €920,000 today.
How to choose the best MSCI World ETF as a Belgian investor
With over 145 ETFs tracking the MSCI World index, choosing the best one can be overwhelming. It requires a lot of research.
To help us make a choice, we will compare the MSCI World ETFs below based on:
- Distribution of dividends. From a taxation point of view, accumulating funds are preferred over distributing funds to avoid paying a 30% tax on dividends.
- Domicile. Luxembourg and Ireland have special tax treaties with the US that make it attractive to set up funds there. As a Belgian investor, you can benefit from this by investing in funds that are domiciled in one of these two countries.
- Currency. If you buy a fund that is not traded in Euro (€), the broker will likely convert it for you. But this comes at an additional cost.
- Size. Larger funds are less likely to be shut down.
- Replication. Physical replication is preferred over synthetic replication to reduce third-party risk.
- Cost. Fund managers charge a fee for managing their funds. The total cost of a fund is indicated by the total expense ratio (TER). Naturally, the lower the better!
- Sustainability. Some ETFs follow a sustainable version of the MSCI World index where some companies have been excluded based on ethical views.
We also published a checklist resource that look at the top criteria you need to be aware of as a Belgian investor when buying ETFs.
The best MSCI World ETFs for Belgians
Based on the criteria above, we selected the following five MSCI World ETFs that could be of interest to you. Note that we chose the following three criteria for all of them:
- Only accumulating funds to avoid 30% tax on dividends
- Registered out of Belgium for tax efficiency
- Only EUR funds to avoid currency risk
The performance of MSCI World ETFs
What immediately stands out is that the performance of these ETFs doesn't vary too much as they all track the same index. Depending on what's more important for you, a different MSCI World ETF might be suitable.
- Largest ETF: liquidity is key to ETF investing. It lets you trade more easily at a fairer price. IWDA (IE00B4L5Y983) is by far the most liquid ETF, nearly seven times larger than the second biggest fund! This is why many investors choose IWDA. We've specifically compared IWDA and SWRD if you want to go further on the comparisons.
- Sustainability: if sustainability is important to you, then 2B7K (IE00BYX2JD69) is one of the only options although less diverse than the other ETFs on offer.
- Cheapest: Low-expense-ratio ETFs will benefit long-term. They keep the most capital invested, instead of paying management fees. When it comes to costs, SWRD (IE00BFY0GT14 ) and LCUW (LU1781541179) offer the lowest rates at 0.12% per year.
Ok, I'm convinced I want to invest in an MSCI World ETF. How do I buy it?
How to buy the MSCI World ETF
There are three steps:
- Choose the MSCI World ETF that fits you best using our comparison above.
- Open an account with a broker. Our comparison of brokers can help you choose.
- Place an order!
Follow our step-by-step guide to investing in the MSCI World index through IWDA.
Curvo, an easy option to put your savings to work
At Curvo, we strongly believe that index investing is the best way for most Belgians to grow their wealth and prepare for their financial future. And we built Curvo to make index investing accessible to all Belgians. The Growth portfolio is a great alternative to the MSCI World index.
It's composed of two funds, both offered by Vanguard:
- FTSE Developed All Cap Choice index (ISIN: IE00B5456744)
- FTSE Emerging All Cap Choice index (ISIN: IE00BKV0W243)
Together, these funds cover the entire world. They are a good proxy for investing in the world economy, like the MSCI World index.
Sustainable
Sustainable investing is challenging because everyone has different beliefs and values. The funds chosen in Growth focus on one guiding principle: they don't invest in companies that are considered destructive to the planet. This means the following sectors are excluded:
- non-renewable energy (nuclear power, fossil fuels)
- vice products (adult entertainment, alcohol, gambling, tobacco)
- weapons (civilian firearms, military weapons)
- controversial companies that do not meet the labour, human rights, environmental and anti-corruption standards defined by the United Nations Global Compact
No transaction tax
Each of the MSCI World ETFs mentioned above are liable for the Belgian transaction tax. You need to pay this tax every time you buy or sell an ETF. But one advantage of Curvo is that the Belgian transaction tax is not applicable. This means you’re saving between 0.12% and 1.32% per transaction depending on the ETF you choose.
All your money is invested
Your investments work with fractional shares meaning that all your money is invested. When buying your own ETFs, you're required to buy whole units of shares. This can make it much harder to do invest monthly (which we recommend!) because you may have to wait several months until you've saved enough to buy a single share. You'll also always be left with some cash on your brokerage account.
You don't encounter these issues with the Growth portfolio. You can start investing from the first month, from €50, and every cent will be invested for you. You can also set up a saving plan to send contributions monthly and put your investments on autopilot.
Portfolio tailored to you
Next to Growth, you can invest in other portfolios, each suited for a different financial goal and appetite for risk. When you sign up to Curvo, you are asked a couple of questions to determine your goal and the risk you are seeking. We'll then match you with the portfolio that's best suited to you and your goals.
Explore how Curvo works if you want to learn more.
Buying ETFs is usually cheaper
Investing in one of Curvo's portfolios is usually more expensive than buying MSCI World ETFs like the ones listed above through a broker. The fee starts from 0.6% “all-in” on your total investments, but provides you with peace of mind as everything is taken care of: taxes, rebalancing and purchases.
Conclusion
Investing in an MSCI World ETF can be an excellent way for you to gain exposure to the global economy. We've explored the key factors to consider when choosing the right ETF for your needs, from tax efficiency to sustainability. Whether you opt for the highly liquid IWDA, the sustainable 2B7K, or the cost-effective SWRD or LCUW, you're making a smart choice for your financial future.
Remember, while these ETFs offer a great foundation for your investment strategy, it's essential to align your choices with your personal goals and risk tolerance. If you're looking for a hands-off approach that combines global exposure with sustainability and avoids transaction taxes, you might want to explore Curvo's Growth portfolio. It offers a similar level of diversification with added benefits tailored for Belgian investors.
Ready to take the next step in your investing journey? Whether you choose to buy an MSCI World ETF through a broker or opt for a managed solution like Curvo, the most important thing is to start investing and stay committed to your long-term financial goals.