Which Vanguard index fund is the best

MSCI World: ETF Comparison

The best index funds on the MSCI World

Hendrik Buhrs
Expert for banks and stock exchanges as of March 11, 2020

Hendrik Buhrs

Hendrik Buhrs is an editor in the bank and insurance team. Before joining Finanztip, he reported on economic and consumer issues for the radio programs of the Hessian and later of the West German Broadcasting Corporation. Hendrik studied economics in Münster and Exeter. He gained his first professional experience at Radio Q and on Recklinghausen local radio. He likes to invest the money he has saved in travel.

  • The MSCI World share index brings together the shares of the 1,600 largest companies.
  • The performance of this global share index is replicated by various providers. Twelve ETFs meet the Finanztip criteria.
  • The ETFs differ only slightly in terms of their performance after costs.

To the ETF calculator

  • If you want to build up assets as easily as possible, choose an "accumulating" ETF: You can find our recommendations in this table. These ETFs automatically reinvest dividends in fund assets.
  • If you value dividends, choose a distributing ETF: You can find our recommendations in this table.

Currently touching the topic Corona virus all areas of life. The stock exchanges have also lost massive amounts of value in the past few weeks. You can read what you should know about investing in our guide to Covid-19 and investing. The basic statements of this text remain unaffected.

Exchange-traded index funds based on the MSCI World share index are a good foundation for a mixed investment portfolio. On the Frankfurt Stock Exchange are in early 202017 such exchange traded funds (ETFs) listed. They all promise investors that they will replicate the performance of the MSCI World Index as closely as possible. But the products are all equally good?

Which ETFs does Finanztip recommend?

We recommend twelve ETFs, our Financial tip criteria for ETFs. You can read more about this at the end of the guide. We have divided the ETFs into two groups: into funds that reinvest (reinvest) their current income from dividends, and into funds that distribute profits to investors.

The funds also differ in the way they track the index. Some buy an optimized selection of the stocks contained in the index (physically replicating ETFs). Others have the performance of the MSCI World guaranteed by a bank and enter into an exchange transaction with it (synthetic replicating ETFs). We explain the differences in more detail in the ETF guide.

The table provides an overview of the type of construction of the twelve tested ETFs.

ETFs on the MSCI World by type

Type of replicaUse of dividends 
 pouring outaccumulating
physically replicating

iShares (ISIN: IE00B0M62Q58)

iShares (ISIN: IE00B4L5Y983)
 

HSBC

(ISIN: IE00B4X9L533)

 
 

UBS

(ISIN: IE00B7KQ7B66)

UBS

(ISIN: IE00BD4TXV59)

 Xtrackers (ISIN: IE00BK1PV551)Xtrackers (ISIN: IE00BJ0KDQ92)
syntheticLyxor (ISIN: FR0010315770)Source (ISIN: IE00B60SX394)
 Lyxor (ISIN: LU0392494562)Xtrackers (ISIN: LU0274208692)
  Amundi
(ISIN: LU1681043599)


Source: Finanztip (as of March 5, 2020)

The MSCI World Index comprises stocks of the 1,600 largest companies in industrialized countries. All of the ETFs we have looked at are committed to the so-called MSCI WorldNet index to replicate.

It measures the performance of the stocks contained in the index including dividends after deduction of withholding tax. This is a capital gains tax that foreign investors (the fund company) have to pay to the state in which the joint stock company is located.

If you are looking for a suitable savings plan, the Finanztip savings plan calculator will help you.

To the calculator

Use the ETF calculator to find the right funds for your portfolio

How are reinvesting ETFs performing on the MSCI World?

Five providers have reinvested ETFs on the MSCI World in their program:

  • Amundi (a French wealth manager)
  • iShares (part of the US wealth manager Blackrock)
  • Source (part of the US fund house Invesco)
  • UBS (major Swiss bank)
  • Xtrackers (belongs to the DWS fund company, the majority shareholder is Deutsche Bank)

Over the five-year period 2015 to 2019 all ETFs performed well, four of the six ETFs even outperformed the benchmark index, and two were just below that. As in the previous year, the iShares ETF (ISIN: IE00B4L5Y983) performed best. The ETF buys a selection of stocks in the MSCI World. Experts speak of “optimized sampling” in this context.

Our recommendations: Win the reinvested ETFs

Index / ETFType of
Replica
costs
(TER) p.a.

Value

winding p.a.1

Profit,
investment
10.000 €  

MSCI World net index  10,53 %6.500 €
iShares Core (ISIN: IE00B4L5Y983)physically0,2 %10,65 %6.590 €
Xtrackers Swap (ISIN: LU0274208692)synthetic0,45 %10,60 %6.547 €
Xtrackers (ISIN: IE00BJ0KDQ92)physically0,19 %10,59 %

6.540 €

Source
(ISIN: IE00B60SX394)
synthetic0,19 %10,58 %6.533 €
Amundi
(ISIN: LU1681043599)
synthetic0,38 %10,50 %6.476 €
UBS
(ISIN: IE00BD4TXV59)
physically0,3 %10,48 %6.463 €

1 Average annual return for the period 2015 to 2019
Sources: MSCI, ETF providers, financial tip calculations (as of March 5, 2020)

For example, an investor who invested 10,000 euros in the iShares ETF at the beginning of 2015 would have made a profit of around 6,590 euros by the end of 2019. With UBS ETFs, savers would have earned a good 6,460 euros in five years - a difference of around 130 euros.

In our analysis of 2020, the iShares ETF performed slightly better than the competition, as in the previous year. The more expensive synthetic ETF of the Xtrackers brand is closer to the index in 2020 than the physical, cheaper counterpart from in-house or the equally cheaper ETF from Source.

Cost is not a reliable indicator

The result shows: The costs (TER) should not play the decisive role for you when choosing the right ETF. Because a comparatively expensive ETF can do better in terms of value development than a cheaper one according to the TER.

This is because ETF providers always have several options in the end to make up for return points. You can lend securities, actually buy only a selection of stocks in the index or - with the synthetic ETF - conclude a good or less good swap with a bank. So the cost alone is not what matters.

You can read more about the selection criteria for a good ETF below in the guide.

How do distributing ETFs fare on the MSCI World?

Distributing ETFs always perform worse in value than reinvesting ETFs. This is because investors are regularly credited with dividends. These dividends are then missing from the fund assets. In order to be able to compare the distributing ETFs, we have calculated the performance that would result if the dividends were reinvested as with an accumulation fund.

Our recommendations: Profit from the distributing ETFs

Index / ETFType of
Replica
costs
(TER) p.a.

Value

winding p.a.1

Profit,
Plant € 10,000
MSCI World net index  10,53 %6.500 €
Lyxor (ISIN: LU0392494562)synthetic0,2 %10,62 %6.566 €
Lyxor (ISIN: FR0010315770)synthetic0,3 %10,57 %6.525 €
HSBC MSCI World (ISIN: IE00B4X9L533)physically0,15 %10,54 %6.502 €
UBS ETF (IE)
(ISIN: IE00B7KQ7B66)
physically0,3 %10,48 %6.463 €
iShares USD (ISIN: IE00B0M62Q58)physically0,5 %10,39 %6.389 €
UBS ETF (LU)
(ISIN: LU0340285161)
physically0,3 %10,31 %6.336 €

1 Average annual return for the period 2015 to 2019
Sources: MSCI, ETF providers, financial tip calculations (as of March 5, 2020)

Of the six distributing funds examined, the Lyxor ETF (formerly Comstage) (ISIN: LU0392494562) performed best in terms of costs. We compared the performance over the five-year period 2015 to 2019. Together with the Ex-Comstage, another ETF from Lyxor (ISIN: FR0010315770) and one from HSBC (ISIN: IE00B4X9L533) can also deny Reference index beat. The other distributing ETFs lag behind the benchmark index in this year's analysis.

An investor who invested 10,000 euros in the Comstage ETF (since 2020 Lyxor) at the beginning of 2015 has therefore achieved a profit of over 6,560 euros by the end of 2019. With the ETF from iShares (ISIN: IE00B0M62Q58), however, it would have been just under 6,390 euros - a difference of 170 euros.

In our analysis, the two synthetic ETFs performed best with total costs (TER) of 0.2 and 0.3 percent, respectively. The ETF from HSBC, the cheapest according to the TER, and other ETFs with 0.3 percent running costs, on the other hand, lagged somewhat in performance. In this case, too, costs do not serve as a reliable indicator of how well an ETF will perform in the end.

Vanguard special case

The US asset manager Vanguard has also been offering its ETFs on the European market since autumn 2018. After Blackrock, Vanguard is the second largest asset manager in the world, and company founder Jack Bogle is considered to be the inventor of ETFs. The company is not listed, but rather organized as a cooperative: The company is owned by US funds, which in turn are in the hands of many investors. For many investors, this is a reason to invest in Vanguard funds.

In Germany, you can buy two globally oriented ETFs from Vanguard: one tracks the largest stocks in the industrialized world (ISIN: IE00BKX55T58), the other also invests in emerging markets (ISIN IE00B3RBWM25). However, Vanguard does not use index data from MSCI as a reference for the performance of the ETFs, but that of the UK index provider FTSE. Since the index data from FTSE were not accessible to Finanztip, we could not analyze the ETFs according to our criteria - and therefore cannot recommend them.

Compared to the MSCI World, the Vanguard Developed Countries ETF (ISIN: IE00BKX55T58) slightly outperformed the MSCI World. Between 2015 and 2019 it averaged per year 10.62 percent gained in value. The ETF buys the majority of the index stocks (optimized sampling) and pays dividends. There are around 2,500 stocks in the index.

If you are interested in the Vanguard ETF, which tracks the largest companies in the world including emerging markets, read on in the MSCI ACWI guide.

Our tip: Always stay up to date - with our free newsletter!

Our tip: stay on the topic [category] always up to date - with our free newsletter!

How do you find the right ETF?

Each investor has to decide for himself which ETF variant is the best choice. However, a few criteria will help you make your choice.

Good feeling - Even if physical and synthetic ETFs are, objectively speaking, comparably safe: If you fear that you will not be able to sleep peacefully with a synthetic ETF in your portfolio, you should choose a physical one.

Use dividends - If you choose a distributing ETF, you will get the dividends credited once a year - and you can work with it. For example, you can use it to pay the withholding tax due if the dividend payments exceed the annual tax exemption for investment income (801 euros for singles, 1,602 euros for married people).

Build wealth - If, on the other hand, you save dividends in an accumulating ETF, you benefit from the fact that dividends increase the fund's assets and are also interest-bearing. Since 2018, a flat rate has been taxed annually for accumulation funds.

However, there is no tax deduction for savers who do not generate more than EUR 801 (singles) or EUR 1,602 (married) per year in investment income and who have placed an exemption order. You can find more information on this in our detailed article on investment tax reform.

Save money when buying - The cheapest way to buy ETFs is from online banks or brokers. We have filtered out the best in the securities account guide.

Why are taxes, costs and currency less important?

When choosing an ETF, many investors look at taxation, the ETF's total expense ratio (TER) and whether an ETF is listed in euros or dollars. In the opinion of Finanztip, however, these selection criteria actually play a minor role.

Same taxation for all ETFs since 2018

Until the end of 2017, the withholding tax was a reason for investors to avoid physically reinvesting ETFs. Such ETFs are often issued abroad. Until 2017, investors had to take care of paying tax on so-called distribution-equivalent income. You couldn't fail to state the corresponding income, including withholding tax refund, in your tax return every year. They must keep the records until they sell the fund.

This changed in 2018: thanks to the reform of the Investment Tax Act, all ETFs - whether physical, synthetic, distributing or accumulating - follow the same logic for taxation: Now there is a formula according to which a lump-sum increase in value (so-called advance lump sum) of the Fund calculated. As an investor, you then have to pay withholding tax on this lump sum. The custodian pays the tax directly to the tax authorities. If you want to avoid this, you should make sure that you set up a sufficiently high exemption order at your bank.

You can find details on the new taxation of individual ETF types since 2018 in the detailed article on accumulating funds, detailed sample calculations in our detailed article on the Investment Tax Act and in our blog post.

Costs alone do not determine the performance of an ETF

The Finanztip analyzes of recent years have shown that neither the total expense ratio (TER) of the respective ETF nor the approximation to the MSCI World Netto Index are good criteria for investors to find the right ETF. More expensive ETFs, for example, were at the top in some years in terms of performance, in others. How well an ETF actually performs in the end depends not only on costs but also on other criteria.

At physically replicating ETFs The performance can differ, among other things, because some ETF providers do not actually buy all of the stocks in the index, but rather optimize the selection ("optimized sampling"). Some ETFs can have more withholding tax refunds than others due to double taxation treaties, and some lend securities at a profit.

At synthetic ETFs it depends on how exactly the swap is designed between the ETF provider and the bank. For example, the swap partner may be reimbursed a little more withholding tax than the provider of a physical ETF. ETF providers working with U.S. banks may have accounting-related benefits.

All ETFs add costs that are not included in the total expense ratio, for example costs for buying and selling stocks - whenever the index composition changes - and the associated trading fee.