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Investing

What is an ETF?

Giuseppe Toscano

• 3 min read
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Hello world! 👋

In today's fast-paced and ever-evolving financial landscape, investors are constantly looking for ways to diversify their portfolios, minimise risk and maximise returns. Among the myriad of investment vehicles available, Exchange Traded Funds (ETFs) have emerged as a popular choice for both novice and seasoned investors. But what exactly is an ETF and how does it work?

In simple terms, an ETF is a basket of financial assets, such as stocks, commodities, or bonds. Similar to stocks, you can trade ETFs throughout the day on stock exchanges. Below you can find the two most key differences between ETFs and stocks:

  • Ownership: when you buy a stock, you are buying a share of a company, this makes you a partial owner of that company. On the other hand, if you buy shares of an ETF, you are buying a collection of various assets bundled together, but the fund is the only owner of all the underline companies (there is no transfer of ownership).
  • Diversification: Stocks represent the performance of a single company, while ETFs provide diversification with multiple assets. For example, an ETF might contain stocks from various companies across different sectors.

Please it is important to conduct your own research and consult with a professional financial advisor before making any investment decisions. The content presented below should not be construed as financial advice, recommendations, or endorsements of any specific investments or strategies. Your financial situation is unique, and you should tailor your decisions to your personal circumstances and goals.

iShares Core MSCI World ETF

The iShares Core MSCI World ETF is one of the most popular ETFs available, it is based on the MSCI World Index which tracks the performance of more than 1.400 large and mid-cap companies across 23 Developed Markets (DM) countries, including: France, Germany, Hong Kong, Italy, Japan, Netherlands, Spain, Switzerland, UK, and US.

MSCI Index Factsheet, April 24 - Cumulative Index Performance

Its distribution is represented by the two pie charts below:

MSCI Index Factsheet, April 24 - Sector Weights and Country Weights

The pie chart on the left illustrates the distribution of investments across various sectors within the iShares Core MSCI World ETF. Here are the key details:

  • Information Technology (23.22%): The largest sector allocation, indicating a significant focus on tech companies.
  • Financials (15.36%): The second-largest allocation, showing a strong emphasis on financial institutions.
  • Health Care (11.99%): A substantial portion is invested in healthcare companies.
  • Industrials (11.3%): Representing investments in industrial companies.
  • Consumer Discretionary (10.6%): Including companies that sell non-essential goods and services.
  • Communication Services (7.53%): Companies in telecommunications and media.
  • Consumer Staples (6.67%): Firms providing essential goods.
  • Energy (4.66%): Investments in energy companies.
  • Materials (3.93%): Companies involved in the production of raw materials.
  • Utilities (2.55%): Firms providing essential services like electricity and water.
  • Real Estate (2.19%): Investments in real estate companies.

The pie chart on the right shows the geographical distribution of the investments in the iShares Core MSCI World ETF. Here are the key details:

  • United States (70.64%): The vast majority of the fund is invested in the U.S. market.
  • Japan (6.06%): The second-largest country allocation, focusing on the Japanese market.
  • United Kingdom (4%): A significant portion is allocated to the UK.
  • France (3.18%): Investments in the French market.
  • Canada (3.07%): Allocations to Canadian companies.
  • Other (13.04%): This category includes investments in various other countries not individually listed.

These are the top 10 constituents (more than 20% of the total) of the MSCI World Index:

  • MSFT Microsoft Corporation
  • AAPL Apple Inc.
  • NVDA NVIDIA Corporation
  • AMZN Amazon.com, Inc.
  • GOOGL Alphabet A Inc.
  • META Meta Platforms, Inc.
  • GOOG Alphabet C Inc.
  • LLY Eli Lilly and Company
  • AVGO Broadcom Inc.
  • JPM JPMorgan Chase & Co.

Some interesting resources:

What are your thoughts on ETFs and how they fit into your investment strategy? Have you had any experiences, good or bad, with ETFs that you'd like to share? Drop a comment below and join the conversation! Your insights and questions are valuable to us and our community. Let's learn and grow together! 🤝

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