Global equity ETFs provide cost-efficient and diversified exposure to the return potential of the world’s biggest stock markets. However, choosing a global equity ETF can be a challenge, even for experienced investors. To help, we consider the different investment universes accessed by global equity ETFs, the advantages and risks associated with passive and active investment strategies, and the criteria investors can use to select a global equity manager.
ETFs provide a gateway to global stock markets
For world ETF investors looking to share in the return potential of global stock markets, the first decision is to choose a global equity benchmark. Among the indices that serve as the foundation for global equity ETFs, the most common world ETF benchmarks include the MSCI World Index, MSCI AC World Index and the FTSE World Index.
- MSCI World Index: This popular index encompasses large and mid-cap stocks across 23 developed markets, offering a comprehensive view of global equity performance. It provides exposure to a diverse range of industries and sectors, making it a popular choice for those seeking broad developed market coverage.
- MSCI All Country World Index: Expanding beyond the MSCI World Index, the MSCI All Country World Index (ACWI) includes exposure to both developed and emerging markets, offering a more inclusive perspective on global equities and the chance to capture growth opportunities in over 45 economies globally.
- FTSE All World Index: Similar to the MSCI AC World Index, the FTSE All World Index tracks large and mid-cap stocks across approximately 50 markets, including both developed and emerging economies, offering broad global equity coverage.
Each index provides access to diversified, market-cap weighted global equity portfolios, but there are some important differences in country, sector and regional exposures – as well as stock weightings – based on the index provider’s stock selection methodology, and its classification of markets and sectors. For example, FTSE includes access to many companies that MSCI classifies as small cap and therefore excludes from its indices. As a result, FTSE indices track more of the investible universe than MSCI (over 4,200 stocks for the FTSE All World at the end of 2024, compared to just over 2,500 for the MSCI ACWI).
These differences in index composition can have an influence on a global equity ETF’s performance and risk profile, so index selection should be based on individual investment objectives (for example, whether an investor wants to focus on developed markets, or to also include broader exposure to emerging markets, in their global equity allocation).
Passive or active global equity ETFs: A quick guide
ETFs have revolutionised the way investors access global equity markets, offering a cost-effective, transparent and easy way to gain exposure to a diversified portfolio of international stocks.
Traditionally, passively managed global equity ETFs – which aim to replicate the performance of a specific global equity benchmark – have dominated the marketplace. The appeal of passive ETFs lies in their low fees and simplicity. By mirroring the performance of major global equity indices, passive ETFs reduce costs and provide a degree of certainty for investors, who know that the risk and performance of their portfolio will closely track their chosen benchmark at all times.
However, passive ETFs are not without their own risks when it comes to global equity investing. Most notably, market-cap-weighted global equity ETF indices have their biggest exposures to the companies that have performed the best in the past, not necessarily the stocks with the most attractive future potential. The risk biases inherent in passive global equity ETFs are particularly relevant at times when indices are more concentrated in certain countries or sectors, such as large US-based technology companies.
Quite simply, narrow global equity benchmarks, and the passive ETFs that track them, may struggle to provide adequate levels of diversification (by market and by sector). Choosing to invest passively means taking significant size, country, sector and style bets that could leave portfolios vulnerable as market performance broadens.
The rise of active global equity ETFs
Actively managed global equity ETFs offer a way to navigate the evolving risk biases in global stock markets by focusing on selecting stocks based on their fundamentals, rather than their size. In a concentrated market, an active approach means not simply betting on yesterday’s winners, but instead choosing to invest in those companies that have the potential to grow their earnings the most in the years ahead.
Active managers use rigorous stock-level research, and tried and test investment processes, to identify undervalued companies and to tap into the latest market trends. As a result, an active approach can help investors manage risk more effectively and achieve a more tailored investment strategy when accessing the return potential of global equity indices.
Choosing an active global equity ETF
While the outlook for active management in global equities is attractive, not all active global equity ETFs are created equal. The best active global equity managers have the skill required to navigate shifts in markets, manage risks effectively and have the potential to outperform their benchmarks, over time.
Investors should therefore look for active global equity ETFs that are not only backed by stock level insights gained from deep global research, but that are also able to translate these insights into portfolios effectively, so that returns will always be driven primarily by stock selection.
J.P. Morgan’s active global equity ETFs
At J.P. Morgan Asset Management, we believe rigorous stock-level research, backed by experienced portfolio managers, proprietary insight and a time-tested investment process, is the key to delivering excess global equity returns across market cycles.
Our actively managed global equity ETFs provide solutions for investors looking for core portfolio allocations, a regular income or sustainability.
- JPM Global Research Enhanced Index Equity UCITS ETF (JREG): This core global equity strategy sticks close to sector and country weights of the MSCI World Index, while providing active exposure to J.P. Morgan’s research by taking small overweight and underweight positions at the stock level.
- JPM All Country Research Enhanced Index Equity Active UCITS ETF (JRAW): This actively managed core global equity ETF is benchmarked to the MSCI All Country World Index, using a tried and tested investment process to target excess returns from J.P. Morgan’s stock-level research, while keeping sector and country risks tightly controlled relative to the MSCI ACWI universe.
- JPM Global Equity Premium Income Active UCITS ETF (JEPG): This total return-oriented global equity strategy is actively managed to provide monthly income from dividends and options premiums, with lower volatility than the MSCI World Index.
Important information
Capital at risk. ETF costs apply. The value of your portfolio with InvestEngine can go down as well as up, and you may get back less than you invest. Past performance does not guarantee future performance.
This communication is provided for general information only and should not be construed as advice. InvestEngine does not offer financial advice. If in doubt you may wish to consult a professional adviser for guidance.