Investing in a world ETF seems like a no-brainer for Belgian investors. It offers global diversification, potentially high returns, and a hands-off approach to growing your wealth. But when you start looking into it, you quickly realise it's not that simple.
With over 145 ETFs tracking world indices, how do you know which one is best for you? Do you go for the popular MSCI World, or consider alternatives like FTSE All-World? And what about those pesky Belgian tax rules?
In this article, we'll cut through the confusion and help you find the best world ETF for your needs. We'll compare the different options, explain the key factors to consider, and even explore an alternative that might make your life easier.
Why world ETFs a great investment for Belgians
Stocks drive returns
Stocks are the main drivers for returns. Throughout the decades, companies all over the world have continued to innovate and thereby yield solid gains to their investors. Global stocks have made an average annual return of 6% over the last 120 years, and that's after inflation. There is no sign that this trend will stop: the drive to create and innovate is an innate trait of human beings.
Also during recent years, the returns of the global stock markets have been excellent. For instance, the MSCI World index has delivered an average yearly return of 10.5% since 1979! If you had invested €10,000 in 1979, you would have over €1,000,000 today.
They're diversified
World ETFs mix stocks from countries around the world, giving you a diversified investment. Essentially, you'll own thousands of stocks from around the world, earning dividends from the growth of the global economy.
The MSCI World index is a popular choice. It contains 1,500 stocks from 23 developed countries such as the United States, Germany and Japan. Developed by Morgan Stanley Capital International (MSCI), this index represents large and mid-cap companies. It offers broad diversification across North America, Europe and the Asia-Pacific region. Companies are selected on the basis of market capitalisation, with larger companies given more weight. For example, Apple and Microsoft account for almost 10% of MSCI World. The US dominates the index with 70% of market capitalisation, followed by Japan, the UK, France and Canada. However, emerging markets such as India and China are not included.
How to choose the best world ETF
With over 145 ETFs tracking a world index or a variant thereof, how do we know which is the best one to choose? It can be quite overwhelming to do the research.
To help us make a choice, we will compare the 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 an index where some companies have been excluded based on ethical views.
If you wish to dig deeper on the topic, read our checklist for choosing an ETF.
The best world ETFs for Belgians
Based on the criteria above, we selected the following six world ETFs that could be of interest to you and which follow three different indices. Note that we chose the following criteria for all of them:
- Only accumulating ETFs to avoid the 30% tax on dividends
- Registered out of Belgium for tax efficiency
- Only EUR funds to avoid currency risk
- Only physical replication ETFs
Little difference in the performance of world ETFs
We analysed the performance of the six chosen ETFs since 2012:
What immediately stands out is that the performance of these ETFs doesn't vary too much. 2B7K slightly edges out the other ETFs in terms of returns. If all world ETFs are more or less the same, what to look out for when choosing one?
- Largest ETF: liquidity is a key component of ETF investing, which allows you to make transactions easier 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 to invest globally.
- Sustainability: if sustainability is important to you, then 2B7K (IE00BYX2JD69) is a solid option. Do note that since it excludes certain companies, it provides less diversification than the non-sustainable world ETFs but it also has better returns in comparison to the other ETFs.
- Cheapest: ETFs which have a low expense ratio will benefit long term as the maximum amount of capital remains invested for the long term (instead of paying management fees). When it comes to costs, SWRD (IE00BFY0GT14) offers the lowest rate at 0.12% per year.
How to buy a world ETF
There are three steps:
- Choose the 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!
However, buying a single ETF is only part of the story. For successful investing, it's important to build a portfolio of ETFs that's tailored to you and your goals. That's where Curvo can become interesting.
Curvo: a carefree way of putting 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 investing in a world ETF. 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 and are a good approximation to an investment in the world economy like the MSCI World index offers.
Portfolio tailored to you
We set up multiple portfolios that are available through the Curvo app, each optimised for a particular type of investor. When you sign up, we ask you a series of questions to get to know you and learn what type of investor you are. Based on your answers, we will match you with the best portfolio.
Sustainable
Sustainable investing is challenging because everyone has different beliefs and values. We focus on one guiding principle: we 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 world ETFs we discussed is 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.
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 Curvo. 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.
Explore how it works.
Buying ETFs is usually cheaper
Investing in one of the Curvo 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, purchases, etc...
Our conclusion
World ETFs provide an excellent opportunity to diversify your portfolio across global markets. We've examined various options, each with its own advantages in terms of size, sustainability, and cost-effectiveness. The choice ultimately depends on your personal investment strategy and priorities.
However, if you find the process of selecting and managing ETFs daunting, Curvo offers a simpler solution. Our Growth portfolio provides a similar level of global diversification, with added benefits like sustainability screening, no transaction tax, and the ability to invest every cent.