With the continued race to the bottom on fees and the rise of retail ETF adoption being key themes of 2023, it is fitting to spotlight an ETF offering a cost-effective, one-stop route to capturing the entire equity market.
Far removed from my uranium or carbon credit picks of previous years – or my colleagues’ no doubt more technical and targeted ETFs – the $69m Invesco FTSE All-World UCITS ETF (FWRA) is a tool for the next generation of investors.
While arriving 18 years after Europe’s first world ETF, FWRA moves the needle on the very well-established pack of more than 100 global equity ETFs by offering the lowest-fee all-world exposure, with a total expense ratio (TER) of just 0.15%.
In fact, not only does the ETF undercut the three largest global equity ETFs – which collectively house $25.2bn – but its fee is a considerable seven basis points (bps) below the largest ETF in segment, from Vanguard, which tracks the same FTSE index.
FWRA is a prime example of what fierce competition within key exposures can do to product development. In a single transaction, investors can access an index capturing 90-95% of the investable market cap of almost 50 developed and emerging markets, for less than a third of what it used to cost to access developed markets alone.
Cost savings do not just end at fees either. Employing a sampling methodology rather than full replication sees FWRA capture 1943 of the 4293 constituents of the FTSE All-World index, meaning it looks to mirror its benchmark’s performance while reducing creation and rebalancing costs, as well as mitigating some potential liquidity red flags that come with holding companies with market caps as low as $21m.
The ETF’s choice of underlying index is also beneficial from a portfolio construction perspective. At a company level, the FTSE All-World has a modest 0.35% underweight to the ‘magnificent seven’ US tech giants versus the MSCI ACWI and captures up to 10% more of global listed market cap, providing more diversification across countries and sizes.
While some argue there is such a thing as over-diversification – or ‘di-worse-ifcation’ as coined by the late Charlie Munger – the index’s relative 1.6% underweight to US equities versus MSCI ACWI and 9% against the MSCI World may seem a desirable attribute to some at a time when US large caps dominate most equity benchmarks.
Overall, I will not be winning any prizes for originality this year. FWRA is not the bright lights, prohibitive cost, off-tune karaoke or subsequent regret of your Christmas party. It is the batch-cooking meals for the week, reading on your commute, spending time with family and other sensible behaviours that comprise the majority of your year.
Crucially, it is another efficient tool for sensible, long-term asset allocation. Decades of back-and-forth piecemeal developments between ETF issuers have given investors the means to buy the listed world of equities for next to nothing.
