The year 2022 has only just ended, but it has already secured its place in stock market history.

After years of upswing, investors had to accept losses of considerable proportions.

Double-digit falls were the norm in all major stock markets.

Dennis Kremer

Editor in the “Value” section of the Frankfurter Allgemeine Sunday newspaper.

  • Follow I follow

That raises uncomfortable questions.

For example, how wise it actually is in such times to rely on a stock market barometer, which the FAS has often recommended.

We are talking about the MSCI World – an index that is often pompously referred to as the world stock barometer.

Calculated in euros, it lost almost 13 percent in value last year.

An unusual experience for many investors who rely on it with the help of ETFs, i.e. index funds.

Certainly there are some who now have fundamental doubts about investing in shares.

But all experience teaches that as soon as the global economy returns to growth, prices will rise again.

Which leads some to a more specific consideration: Isn't now the time to replace the MSCI World with an index that has been overshadowed by the World Stock Barometer for all these years?

Its name sounds almost like the original: MSCI All Country World (ACWI).

Serious differences

But there are major differences between the two barometers.

The MSCI World reflects the performance of around 1500 stocks from 23 industrialized countries.

Contrary to what its name suggests, public companies from the emerging countries are completely left out.

The All Country Index lives up to its name.

Admittedly, shares from all countries of the world are not included here either, but from many more countries: If you count, you come to around 2900 listed companies, some of which come from the same 23 industrialized countries, but another part from all over the world 24 emerging markets.

Seen in this way, the MSCI All Country World could be a much better investment than the original, especially in difficult times on the stock markets.

At least at first glance, it embodies a basic idea of ​​every investment even more convincingly - the principle of diversification.

The theoretical idea behind it is: The more shares and the more countries are included in an index, the more investors are protected against setbacks.

Losses in one country are offset by gains in another.

But is that really true?

The practical comparison shows that the decision between the indices is more difficult than it first appears.

Because a look back makes it clear: In the past, the all-country index has hardly benefited from its supposed advantage, the greater diversification.

Across a wide range of time periods, the MSCI World has almost always outperformed its peers, albeit marginally.

"This has to do with the fact that the most important stocks in both barometers are identical," says Ali Masarwah, analyst at fund comparison platform Envestor.

In fact, the largest share in both indices is the stock of the iPhone manufacturer Apple, followed by the software company Microsoft and the online department store Amazon.

What is surprising at first sight is hardly surprising on closer inspection.

Because both the MSCI World and the All Country Index follow the principle of market capitalization.

This means that the more positive the price development of a company and the higher the number of freely tradable shares, the greater its weight in the index.

That's why Apple is at the forefront on both occasions.

However, due to the slightly larger stock market value of all stocks in the All Country Index, the respective share is slightly different: In the latter, Apple has a weight of 3.7 percent, while in the MSCI World it is 4.2 percent.