Fine-tuning your global equities portfolio
Summary
Share
Marketing communication
The case for splitting USA and World ex-USA exposure
Key takeaways
• Balanced Diversification1 : Combining both USA and World ex-USA portfolios aligns with global GDP distribution, captures diverse earnings streams, and offers geographically balanced exposure.
• Strategic Allocation: Utilizing MSCI USA and MSCI World ex-USA indices provides transparent, liquid, and cost-efficient building blocks for robust portfolio construction.
• Global Growth Potential: While the USA dominates market capitalisation, the rest of the world, representing 68%2 of global GDP, offers substantial growth opportunities.
1. Global macroeconomics: The constant in an evolving investment landscape
Despite the many advancements in portfolio construction — from sector investing and factor tilts to ESG and thematic approaches — one thing remains a constant: global macroeconomic forces continue to play the dominant role in shaping portfolio returns. While new strategies and tools offer more precision and flexibility, they cannot escape the influence of the key markets that drive global growth. To build a resilient and well-diversified1 portfolio in today’s complex financial landscape, a deep understanding of these global drivers is essential.
These forces are often best captured through allocations to key markets, such as the USA and other major economies. Thus, indices such as MSCI USA and MSCI World ex USA remain strong cornerstones for efficient portfolio construction, reflecting the performance of these key economic regions.
2. MSCI USA’s crucial role in global allocation
To understand the potential benefits of allocating between MSCI USA and MSCI World ex-USA, it is important to recognise the unique role of MSCI USA. In this context, examining the drivers behind the performance of the MSCI World index is especially important.
Global Portfolios: A Tale of U.S. Dominance and Diverse Markets
The MSCI World Index is heavily dominated by the USA, which makes up over 71% of its weight, with the rest distributed among developed markets such as Japan, the UK, France, and Canada.3
This underlines how country allocation, especially between the US and non-US (developed or emerging) markets, can be a primary driver of returns in global portfolios.4
The MSCI World ex-USA Index, as the name suggests, excludes the US entirely and has a more balanced distribution among other developed markets. Of note is Europe's share in the index, which accounts for approximately 51%, thus demonstrating Europe's substantial representation in developed markets outside the United States.5
Source: Bloomberg, MSCI, Amundi. Data as at 30/08/2024. Past performance is not a reliable indicator of future performance.
Country Allocation: is USA dominance justified?
The United States' impressive economic prowess is vividly reflected in its free float market capitalisation, which stands at a remarkable 62% of the global total.6 This figure significantly outpaces its share of global GDP, which is 32%.6
This disparity underscores the extraordinary success of the US stock market, which is heavily driven by its booming tech sector. Over time, the country has experienced a phenomenal rally, fuelled by innovative companies. This outsized market performance7 relative to GDP highlights the efficiency and dynamism of US capital markets.
However, it is worth noting that the rest of the world, representing 68% of global GDP, also offers substantial growth potential.6 Diversifying1 into these markets could provide investors with exposure to emerging opportunities and the chance to capitalise on future economic expansions in diverse regions, potentially balancing portfolios and tapping into the next wave of global growth stories.
Source: MSCI, Amundi, “Rest of the World” stands for MSCI ACWI IMI (including Large, Mid and Small Caps). Data as at 30/08/2024. Past performance is not a reliable indicator of future performance.
Sector Breakdown: Tech Titans vs. Global Balance
When comparing the sector weights of the MSCI USA Index, MSCI World ex USA Index, and MSCI World Index, clear differences emerge in how these indices are diversified across industries.
The MSCI USA Index is heavily dominated by Information technology, while the MSCI World ex USA Index offers a more diversified1 sectoral breakdown, with financials being the largest sector, followed by industrials. Information technology represents only 8.93% of this index, indicating a much smaller influence of tech stocks in non-US developed markets.8
The MSCI World Index, which includes both the USA and ex-USA components, reflects a blend of these weights, and while information technology remains the largest sector, the presence of financials and industrials from non-US markets provides for a more balanced exposure. This sector diversification1 highlights the complementary nature of combining the US and non-US markets in global portfolios, with the MSCI World ex USA Index adding exposure to sectors less represented in the US market.
Source: Bloomberg, MSCI, Amundi. Data as at 30/08/2024. Past performance is not a reliable indicator of future performance.
3. Combining USA and World Ex-USA: A strategic toolbox for global investors
Global Equity Performance: the US edge and the power of diversification1
The MSCI USA Index has vastly outperformed9 its non-US counterpart over the long run, reflecting the sustained dominance of the US equity market, driven by its high allocation to high-growth technology companies. But whilst lower than those of the MSCI USA Index, the MSCI World ex USA Index has nonetheless provided strong returns over the long term3, with sectors such as financials and healthcare contributing to a more diversified1 risk profile.
Source: Bloomberg, MSCI, Amundi. Data as at 30/08/2024. Past performance is not a reliable indicator of future performance.
MSCI World ex USA Index can thus serve as an important diversification1 building block, adding value to a global portfolio by mitigating overexposure to US markets and providing potential returns from other developed economies.
Valuation and Dividend Yield
In addition to its potential diversification1 benefits, the MSCI World ex USA Index exhibits lower value metrics and a higher dividend yield versus the MSCI USA Index. This makes it attractive for investors looking to diversify their sources of return beyond the capital gains-driven US market, offering the potential for both capital appreciation and a reliable stream of income.
Source: Bloomberg, Amundi. Past performance is not a reliable indicator of future performance. Best consensus estimates as at 05/09/2024.
MSCI USA and World ex-USA: precision tools for global investors
All in all, the MSCI USA and MSCI World ex-USA indices offer investors powerful tools for building and steering their portfolios with precision. They provide a high degree of granularity, allowing investors to fine-tune their exposure based on their forecasts and considerations.
The MSCI USA index captures the remarkable economic strength and outsized market capitalisation of the United States. It reflects its dominance in global markets, particularly in the technology sector. In contrast, the MSCI World ex-USA index presents potentially compelling opportunities, providing diversification1, lower valuation metrics and higher dividend yields, thus presenting attractive entry points for value-oriented and income-seeking investors.
Using this toolbox empowers global investors to create tailored strategies that align with their unique investment goals, risk tolerance, and market outlook, enabling them to navigate global markets with precision and adaptability.
4. Accessing the opportunity
ETFs provide easy and cost-effective access to these key investment building blocks.
The Amundi MSCI USA UCITS ETF offers exposure to the large and mid-cap segments of the US market. With 601 constituents, it covers approximately 85% of the free float-adjusted market capitalization in the US.
The Amundi MSCI World Ex USA UCITS ETF offers exposure to the international equity markets of 22 developed market countries, excluding the United States, allowing for a more precise allocation to global equities.
1. Diversification does not guarantee a profit or protect against a loss.
2. Source: MSCI, Amundi as at 30/08/2024
3. Source: Bloomberg, MSCI, Amundi. Data as at 30/08/2024. Past performance is not a reliable indicator of future performance.
4. Past market trends are not a reliable indicator of future ones.
5. Source: Bloomberg, MSCI, Amundi. Data as at 30/08/2024. Past performance is not a reliable indicator of future performance.
6. Source: MSCI, Amundi, “Rest of the World” stands for MSCI ACWI IMI (including Large, Mid and Small Caps). Data as at 30/08/2024.
Past performance is not a reliable indicator of future performance.
7. Past performance is not a reliable indicator of future performance.
8. Source: MSCI, Amundi. Data as at 30/08/2024. Past performance is not a reliable indicator of future performance.
9. Past performance is not a guarantee or indication of future results.
Investment involves risks. For more information, please refer to the Risk section below.
KNOWING YOUR RISK
It is important for potential investors to evaluate the risks described below and in the fund’s Key Information Document (“KID”) and prospectus available on our website www.amundietf.com.
CAPITAL AT RISK - ETFs are tracking instruments. Their risk profile is similar to a direct investment in the underlying index. Investors’ capital is fully at risk and investors may not get back the amount originally invested.
UNDERLYING RISK - The underlying index of an ETF may be complex and volatile. For example, ETFs exposed to Emerging Markets carry a greater risk of potential loss than investment in Developed Markets as they are exposed to a wide range of unpredictable Emerging Market risks.
REPLICATION RISK - The fund’s objectives might not be reached due to unexpected events on the underlying markets which will impact the index calculation and the efficient fund replication.
COUNTERPARTY RISK - Investors are exposed to risks resulting from the use of an OTC swap (over-the-counter) or securities lending with the respective counterparty(-ies). Counterparty(-ies) are credit institution(s) whose name(s) can be found on the fund’s website amundietf.com. In line with the UCITS guidelines, the exposure to the counterparty cannot exceed 10% of the total assets of the fund.
CURRENCY RISK – An ETF may be exposed to currency risk if the ETF is denominated in a currency different to that of the underlying index securities it is tracking. This means that exchange rate fluctuations could have a negative or positive effect on returns.
LIQUIDITY RISK – There is a risk associated with the markets to which the ETF is exposed. The price and the value of investments are linked to the liquidity risk of the underlying index components. Investments can go up or down. In addition, on the secondary market liquidity is provided by registered market makers on the respective stock exchange where the ETF is listed. On exchange, liquidity may be limited as a result of a suspension in the underlying market represented by the underlying index tracked by the ETF; a failure in the systems of one of the relevant stock exchanges, or other market-maker systems; or an abnormal trading situation or event.
VOLATILITY RISK – The ETF is exposed to changes in the volatility patterns of the underlying index relevant markets. The ETF value can change rapidly and unpredictably, and potentially move in a large magnitude, up or down.
CONCENTRATION RISK – Thematic ETFs select stocks or bonds for their portfolio from the original benchmark index. Where selection rules are extensive, it can lead to a more concentrated portfolio where risk is spread over fewer stocks than the original benchmark.
CREDIT WORTHINESS – The investors are exposed to the creditworthiness of the Issuer.
IMPORTANT INFORMATION
This material is solely for the attention of professional and eligible counterparties, as defined in Directive MIF 2014/65/UE of the European Parliament (where relevant, as implemented into UK law) acting solely and exclusively on their own account. It is not directed at retail clients. In Switzerland, it is solely for the attention of qualified investors within the meaning of Article 10 paragraph 3 a), b), c) and d) of the Federal Act on Collective Investment Scheme of June 23, 2006.
This information is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities or services in the United States or in any of its territories or possessions subject to its jurisdiction to or for the benefit of any U.S. Person (as defined in the prospectus of the Funds or in the legal mentions section on www.amundi.com and www.amundietf.com. The Funds have not been registered in the United States under the Investment Company Act of 1940 and units/shares of the Funds are not registered in the United States under the Securities Act of 1933.
This document is of a commercial nature. The funds described in this document (the “Funds”) may not be available to all investors and may not be registered for public distribution with the relevant authorities in all countries. It is each investor’s responsibility to ascertain that they are authorised to subscribe, or invest into this product. Prior to investing in the product, investors should seek independent financial, tax, accounting and legal advice.
This is a promotional and non-contractual information which should not be regarded as an investment advice or an investment recommendation, a solicitation of an investment, an offer or a purchase, from Amundi Asset Management (“Amundi”) nor any of its subsidiaries.
The Funds are Amundi UCITS ETFs. The Funds can either be denominated as “Amundi ETF” or “Lyxor ETF”. Amundi ETF designates the ETF business of Amundi.
Amundi UCITS ETFs are passively-managed index-tracking funds. The Funds are French, Luxembourg or Irish open ended mutual investment funds respectively approved by the French Autorité des Marchés Financiers, the Luxembourg Commission de Surveillance du Secteur Financier or the Central Bank of Ireland, and authorised for marketing of their units or shares in various European countries (the Marketing Countries) pursuant to the article 93 of the 2009/65/EC Directive.
The Funds can be French Fonds Communs de Placement (FCPs) and also be sub-funds of the following umbrella structures:
For Amundi ETF:
- Amundi Index Solutions, Luxembourg SICAV, RCS B206810, located 5, allée Scheffer, L-2520, managed by Amundi Luxembourg S.A.
- Amundi ETF ICAV: open-ended umbrella Irish collective asset-management vehicle established under the laws of Ireland and authorized for public distribution by the Central Bank of Ireland. The management company of the Fund is Amundi Ireland Limited, 1 George’s Quay Plaza, George’s Quay, Dublin 2, D02 V002, Ireland. Amundi Ireland Limited is authorised and regulated by the Central Bank of Ireland
Before any subscriptions, the potential investor must read the offering documents (KID and prospectus) of the Funds. The prospectus in French for French UCITS ETFs, and in English for Luxembourg UCITS ETFs and Irish UCITS ETFs, and the KID in the local languages of the Marketing Countries are available free of charge on www.amundi.com, www.amundi.ie or www.amundietf.com. They are also available from the headquarters of Amundi Luxembourg S.A. (as the management company of Amundi Index Solutions), or the headquarters of Amundi Asset Management (as the management company of Amundi ETF French FCPs, Multi Units Luxembourg, Multi Units France and Lyxor Index Fund), or at the headquarters of Amundi Ireland Limited (as the management company of Amundi ETF ICAV). For more information related to the stocks exchanges where the ETF is listed please refer to the fund’s webpage on amundietf.com.
Investment in a fund carries a substantial degree of risk (i.e. risks are detailed in the KID and prospectus). Past Performance does not predict future returns. Investment return and the principal value of an investment in funds or other investment product may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability.
It is the investor’s responsibility to make sure his/her investment is in compliance with the applicable laws she/he depends on, and to check if this investment is matching his/her investment objective with his/her patrimonial situation (including tax aspects).
Please note that the management companies of the Funds may de-notify arrangements made for marketing as regards units/shares of the Fund in a Member State of the EU or the UK in respect of which it has made a notification.
A summary of information about investors’ rights and collective redress mechanisms can be found in English on the regulatory page at https://about.amundi.com/Metanav-Footer/Footer/Quick-Links/Legal-documentation with respect to Amundi ETFs.
This document was not reviewed, stamped or approved by any financial authority.
This document is not intended for and no reliance can be placed on this document by persons falling outside of these categories in the below mentioned jurisdictions. In jurisdictions other than those specified below, this document is for the sole use of the professional clients and intermediaries to whom it is addressed. It is not to be distributed to the public or to other third parties and the use of the information provided by anyone other than the addressee is not authorised.
This material is based on sources that Amundi and/or any of her subsidiaries consider to be reliable at the time of publication. Data, opinions and analysis may be changed without notice. Amundi and/or any of her subsidiaries accept no liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this material. Amundi and/or any of her subsidiaries can in no way be held responsible for any decision or investment made on the basis of information contained in this material.
Updated composition of the product’s investment portfolio is available on www.amundietf.com. Units of a specific UCITS ETF managed by an asset manager and purchased on the secondary market cannot usually be sold directly back to the asset manager itself. Investors must buy and sell units on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units and may receive less than the current net asset value when selling them.
Indices and the related trademarks used in this document are the intellectual property of index sponsors and/or its licensors. The indices are used under license from index sponsors. The Funds based on the indices are in no way sponsored, endorsed, sold or promoted by index sponsors and/or its licensors and neither index sponsors nor its licensors shall have any liability with respect thereto. The indices referred to herein (the “Index” or the “Indices”) are neither sponsored, approved or sold by Amundi nor any of its subsidiaries. Neither Amundi nor any of its subsidiaries shall assume any responsibility in this respect.
AMUNDI PHYSICAL GOLD ETC (the “ETC”) is a series of debt securities governed by Irish Law and issued by Amundi Physical Metals plc, a dedicated Irish vehicle (the “Issuer”). The Base Prospectus, and supplement to the Base Prospectus, of the ETC has been approved by the Central Bank of Ireland (the “Central Bank”), as competent authority under the Prospectus Directive. Pursuant to the Directive Prospective Regulation, the ETC is described in a Key Information Document (KID), final terms and Base Prospectus (hereafter the Legal Documentation). The ETC KID must be made available to potential subscribers prior to subscription. The Legal Documentation can be obtained from Amundi on request. The distribution of this document and the offering or sale of the ETC Securities in certain jurisdictions may be restricted by law. For a description of certain restrictions on the distribution of this document, please refer to the Base Prospectus. The investors are exposed to the creditworthiness of the Issuer.
In EEA Member States, the content of this document is approved by Amundi for use with Professional Clients (as defined in EU Directive 2004/39/EC) only and shall not be distributed to the public.
Information reputed exact as of the date mentioned above.
Reproduction prohibited without the written consent of Amundi.