Disclaimer: All data in this post is accurate as of 15/11/21.
In my beginner’s guide to ETFs, I talked about how there are often multiple ETFs that track a single index.
For example, the S&P 500 index has many ETFs tracking it, so it can be hard to find out which is the best S&P 500 ETF.
When it comes to World ETFs, this gets slightly more confusing.
Not only are there multiple ETFs that track the same index, but there are also multiple world indices with slight differences between them.
It’s pretty easy to get overwhelmed when trying to do a comparison between all the available options, so I’ve done the work for you.
In this post, I take a closer look at 6 popular World ETFs to highlight some of the differences between them and reveal which would be my pick among them.
First, let’s meet the contestants.
The 6 ETFs we will be looking at are:
- VT (Vanguard Total World Stock ETF, NYSE)
- IWDA (iShares Core MSCI World UCITS ETF, LSE)
- SWRD (SPDR MSCI World UCITS ETF, LSE)
- VWRA (Vanguard FTSE All-World UCITS ETF, LSE)
- V3AA (Vanguard ESG Global All Cap UCITS ETF, LSE)
- ISAC (iShares MSCI ACWI UCITS ETF, LSE)
These ETFs were selected because I feel that they are discussed heavily among Singaporeans and are all traded in USD for a fair comparison.
Between the 6 ETFs, they track 5 different world indices.
As a result, there are some inherent differences between the ETFs due to how each world index differs from another, and I’ll go through some of them.
But first, a short introduction to the 5 world indices.
FTSE Global All Cap Index
VT tracks the FTSE Global All Cap Index.
It tracks the performance of large-, mid-, and small-cap stocks from both developed and emerging markets around the world.
MSCI World Index
Both IWDA and SWRD track the MSCI World Index.
This index tracks the performance of large- and mid-cap stocks from 23 different developed markets around the world.
FTSE All-World Index
VWRA tracks this index, which tracks the performance of large- and mid-cap stocks from developed and emerging markets around the world.
FTSE Global All Cap Choice Index
This is an index that tracks the performance of large-, mid-, and small-cap stocks from developed and emerging markets around the world.
On top of this, the index only tracks stocks from companies that are screened for ESG (Environmental, Social, Government) criteria.
This means that certain companies that don’t meet the criteria aren’t included in the index.
V3AA tracks this index.
MSCI ACWI Index
This index tracks the performance of large- and mid-cap stocks from developed and emerging markets around the world.
ISAC tracks this index.
The first difference between these world indices is the market capitalisation (cap for short) of the stocks that they focus on.
All of the indices cover large- and mid-cap stocks, but only 2 of them cover small-cap stocks – FTSE Global All Cap and FTSE Global All Cap Choice.
In terms of market cap, this makes VT and V3AA more diversified than the other ETFs.
I couldn’t find the % allocation to small-cap stocks for VT, but I’d imagine it doesn’t differ much from that of V3AA at ~8%.
Next, the world indices also differ in terms of the market classification of the economies they focus on.
All of the indices track the performance of stocks from developed and emerging markets except the MSCI World Index, which only tracks stocks from developed markets.
This makes IWDA and SWRD less diversified in terms of market classification.
Examples of developed markets include the US, UK, Singapore, and Hong Kong.
Examples of emerging markets include China, India, and Brazil.
The allocation to emerging markets among the ETFs that include them is mostly ~10%.
Finally, since the indices are different, the allocation of the holdings to each sector and country are also slightly different between the ETFs.
The differences are present, but minimal – especially between IWDA and SWRD since they track the same index.
The data presented below is based on the respective ETF data:
V3AA has a higher allocation to the IT and Real Estate sectors, but a lower allocation to the Energy sector.
IWDA, SWRD, and ISAC have a higher allocation to Communication Services.
IWDA and SWRD have no allocation to China because they only cover developed markets and China is classified as an emerging market.
They also have a larger allocation to the USA.
Personally, I don’t think that the variations in the sector or geographical holdings are impactful enough to make one ETF better than another.
But it may be helpful to know the breakdown of exposure you have to the various sectors and countries.
This is an important factor to consider because it directly relates to the cost of your investment.
The expense ratio is the fee imposed by fund managers for managing the ETF.
Naturally, we want to minimise the fees we pay for our investments, and we can do so by selecting ETFs with the lowest expense ratios.
From the table above, VT has the lowest expense ratio at 0.08%.
Distributing Or Accumulating
This refers to how the ETF deals with the dividends that it receives from its underlying companies.
As the names suggest, distributing (DIST) ETFs distribute their dividends to investors while accumulating (ACC) ETFs reinvest their dividends into themselves.
VT is the only DIST ETF among the 5.
Assuming that all dividends are reinvested, the total returns generated by DIST and ACC ETFs should be equal.
However, when dividends are paid out to investors, it is likely that they will not be efficiently reinvested because of the time lag between these events.
Also, if your broker doesn’t allow fractional shares, you often end up with leftover dividends that cannot be reinvested.
In general, ACC ETFs are more efficient and convenient than DIST ETFs especially for investors who are in the wealth accumulation phase (ie young investors).
For a more detailed post about DIST and ACC ETFs, you can check out this post.
This is a factor that directly relates to overall investment returns.
Dividend withholding tax (WHT) is a factor that should be considered in tandem with dividend yield because it affects the final dividend received by investors.
WHT is the tax imposed by governments on dividends that are paid from companies within a country to recipients outside the country.
For Singaporean investors, the effective WHT is 30% for US-domiciled ETFs and 15% for Ireland-domiciled ETFs.
For more information about WHT, you can check out this post.
Typically, US-domiciled ETFs disclose gross dividend yields while Ireland-domiciled ETFs disclose net dividend yields (source).
However, all the ETFs except VT are ACC ETFs and don’t actually pay out dividends.
Morningstar reported dividend yields for these ETFs anyway, and I noticed that they were similar to the dividend yield of the index they each tracked.
This led me to believe Morningstar’s figures were not net of the applicable WHT, which is why I took them as gross values and tabulated net values.
I could be wrong about this, so if anyone has a clearer understanding of this, feel free to let me know and I’ll make any amendments accordingly.
Based on the data above, VWRA has the highest net dividend yield of 1.58%.
This is a factor that indirectly affects your investment returns.
Liquidity refers to how easy it is to convert an investment into cash and is often judged based on the trading volume.
A higher volume indicates that more people are trading a particular investment, and would thus be easier to sell for cash.
This indirectly leads to a tighter bid-ask spread, which is the difference between the prices that buyers and sellers are willing to trade at respectively, simply because there are more people looking to trade.
In turn, this means that it is more likely for you to get a better price as compared to if the trade volume is low and the bid-ask spread is high.
|ETF||Average Trade Volume|
As you can see, VT has the highest trade volume by a landslide.
Which Is The Best?
It’s hard to pick a world ETF that is, objectively, the best.
Unlike S&P 500 ETFs that all track the same index, these world ETFs are inherently different because of the different indices they track.
So they are each good for different reasons.
But based on what you value and how you define a “best” ETF, one ETF may be more suitable for you than another.
My Pick: SWRD
If I had to pick one winner out of these 6 ETFs, it would be SWRD.
Let me explain my reasons for this.
Between IWDA and SWRD (which track the same index), SWRD makes more sense to me because it has a lower expense ratio of 0.12% vs 0.20%.
Even though SWRD has a much lower trade volume, I don’t foresee it being an issue.
As a long-term investor, I won’t be doing any trading and I’ll be a price-taker in the market almost all the time.
Then, the main difference between SWRD and the remaining ETFs is the inclusion of small-cap stocks and emerging markets.
I don’t deny that having a more diverse holding of stocks in terms of market cap and market classification can be beneficial.
However, by investing in general, broad ETFs like VT or VWRA, you lose the ability to control portfolio allocation.
Let’s take VWRA for example, and assume that it allocates 90% of its holdings to developed markets and 10% to emerging markets.
When you invest in VWRA, you will always be forced to maintain a portfolio allocation of 9:1 between developed markets and emerging markets.
This means you cannot change your overall portfolio allocation to developed or emerging market relative to the other without investing in other overlapping ETFs.
In other words, the maximum position you can have in emerging markets via VWRA is 10% – given that your entire portfolio is invested in VWRA.
If you want to increase your exposure to emerging markets, you’ll need to invest in other emerging market ETFs like EIMI.
And if you want to increase your exposure to developed markets, you’ll need to invest in another developed market ETF like SWRD.
The same logic applies to small-cap stocks if you invest in VT/V3AA.
Personally, while I think it’s convenient for an ETF to cover more bases, it takes away the flexibility you have as a DIY investor.
If I want to diversify my portfolio by investing in small-cap stocks or emerging markets, I’d prefer investing in specific ETFs that serve those purposes (VBR/WSML/EIMI).
This way, I’ll be free to control the allocation of my portfolio to each asset and not be restricted by the ETF’s allocations.
Since SWRD only includes large- and mid-cap stocks from developed markets, it will be easier to tweak my portfolio allocation to small-cap stocks and emerging markets in the future.
Also, SWRD’s expense ratio is the 2nd lowest among these 6 ETFs and has a decent dividend yield.
In terms of these 2 aspects, SWRD does well too.
Given the differences between the world ETFs, I don’t think there’s an absolute “best ETF”.
My pick of SWRD is based on my investing preference to be able to easily control my portfolio allocation.
This means that I’m prepared to invest in other ETFs in order to achieve the desired exposure to other equities.
If this idea doesn’t resonate with you, then a different ETF may be more suitable for you and would be the best for you.
For example, if you prefer to keep things simple and only invest in 1 ETF, you may pick another ETF depending on how much you value some exposure to small-cap stocks and/or emerging markets.
The differences that exist between these world ETFs don’t necessarily make one better than another.
At the end of the day, you need to know what you value as an investor – convenience, control, cost, etc – in order to pick an ETF that is best suited for you.
Which world ETF will you invest in and why? Let me know in the comments below!
2 replies on “The Best World ETF: VT vs IWDA vs SWRD vs VWRA vs V3AA vs ISAC”
Hi TFS, I am on board with you on ur choice of SWDR. Though wonder how does one consider if we take into account S&P 500 ETF like CPSX?
May I seek your advice?
I plan to invest 10k via IBKR. I had bought VWDR, SWDR, CPSX (about 33% each).
I have the same thoughts as you and would pick SWDR. But about CPSX?
I would like to know if I should put 10k just in SWDR or just spilt among VWDR, SWDR, CPSX or SWDR and CPSX.
Can you share what is ur thought process behind ur decision on the above situation (investing 10k), please?
If I have spare cash of around 1.5k per mth, should I invest every mth or invest 3k every 2 mths etc? I wonder how to calculate the transaction fee. Sorry, don’t understand: https://www.interactivebrokers.com/en/index.php?f=commission
Thanks for checking out my blog and leaving a comment!
It seems like you’re deliberating over the decision between world ETF (SWRD) and S&P 500 ETF (CSPX/VWRD). Usually, people choose to invest in 1 or the other, and not both. This is because the US (and S&P 500) makes up a large proportion of a world ETF’s holdings (usually ~60%). So by investing in a world ETF, they are effectively already investing in the S&P 500.
The choice between a world ETF and S&P 500 ETF comes down to your investing beliefs. If you think the US will be the main driver of economic growth in the decades to come, then you’d probably invest in S&P 500 ETF to concentrate your holdings to US only. But if you don’t think that will be the case and that other countries will drive growth instead, a world ETF is more aligned to that belief.
Historically, S&P 500 has been outperforming world ETFs, but past performance isn’t an indication of future performance. It may help to consider how diversified you want to be (world = more diversified).
You can also choose to invest in both S&P 500 and world ETFs, but this means your portfolio will still be highly concentrated in the US. At this point, I’m not sure if the diversification to other countries from the world ETF would be significant in your portfolio, depending on the allocation between the 2 ETFs.
Personally, I invest in CSPX and diversify my portfolio with other ETFs.
Since all the ETFs you listed are USD-denominated but listed on the LSE, the commission fee is 1.70 USD/trade. This comes up to about 2~3 SGD. Don’t forget to add the FX conversion fee of 2 USD as well, which is about 2.70 SGD. Given your monthly investment sum of 1.5k SGD, your fees will be ~0.33%, which I think is fairly low, so investing every month is reasonable. Of course, if you want to reduce these fees, investing every 2 months instead will do the trick.
Hope this helps!