Investing in the MSCI World… BUT With a Twist!

Investing in the MSCI World… BUT With a Twist!
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In the ever-evolving landscape of financial markets, the choice between active and passive investing has long been a subject of debate among investors. While many have found solace in the widely popular MSCI World ETF, there's a compelling case for a different approach - a passive strategy with a unique twist that could potentially amplify returns: the quality factor. Investing with a focus on quality adds a nuanced dimension to the conventional passive investing approach, bringing a strategic element to passive investing that might just be the game-changer investors are seeking. In a world dominated by market indices and exchange-traded funds (ETFs), it's essential to explore passive investing alternatives that not only preserve the essence of passive investing but also harness the power of quality metrics. This video delves into the realm of passive investing with a twist, shedding light on why the quality factor deserves a closer look. As we navigate through the intricacies of investment strategies, we'll uncover the potential benefits of deviating from the well-trodden path of MSCI World Index and exploring alternatives that align more closely with the principles of quality-driven investing. Get ready to rethink your passive investment approach and discover how a subtle shift in focus could lead to a substantial boost in returns.
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DISCLAIMER:
The content provided on this channel should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. The stocks and funds discussed on this channel are examples only and may not be appropriate for your individual circumstances.
Before making any financial or investment decisions, I recommend you consult a financial planner or advisor to take into account your personal investment objectives, financial situation, and individual needs.
In no event shall René Sellmann be liable to any viewer for any damages of any kind arising out of the use of any content published on this channel, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages.
I hope you enjoyed the content!

What I should have included in the video is a comparison of the total expense ratio of the indices. The TER of the "iShares Edge MSCI World Quality Factor UCITS ETF" for instance is slighter higher than the TER of the "iShares Core MSCI World UCITS ETF" (0.3% vs. 0.2%). The Quality ETF also owns fewer stocks (300 vs 1,500). This doesn't change the overall point I was trying to make here though.

[@marvincujus3431]

There is msci World sector neutral quality index only for investment not World quality index. Do you have a World quality etf ?

[@boglehead5822]

The 'Xtrackers MSCI World Quality UCITS ETF 1C' has lower TER of 0,25%

[@massafelipe8063]

Ishares and Xtrackers offerings ARE NOT tracking MSCI World Quality index but MSCI World Quality Sector Neutral index, which is significantly different form the former.

Did I mention those in the video?

[@massafelipe8063]

It was not a direct reference or critique to your video, however, msci world quality is practically uninvestable for a european investor since there are no ETF offerings which track that index right now. I thought it was worth pointing out.

Absolutely. Thanks for that!

[@alvarocaballero3477]

@@massafelipe8063You are totally right. I came with the same conclusion and Im really looking into finding it.

[@kevinsingh6649]

@@massafelipe8063 is there no chance to invest in the real MSCI WOrld Quality ? not in the Sector... Momentum is better as the fake Quality or? :P

[@jjmontgo2]

Thank you SO much. I hadn't heard of Quality Factor ETFs and it looks like just the thing I've been looking for.

Glad it was helpful!

[@yaseral-saffar7695]

There is actually MSCI quality index going back to 1976 and it shows that it underperforms between 1976 and 1995. I suspect it underperforms during inflationary periods. Actually between 1976 and 1986 the real returns of each respectively were 6.67% and 8.8%, fairly big.

Thanks for adding this information. Why do you link the underperformance to inflation?

[@yaseral-saffar7695]

@ basically, highly leveraged (low quality) companies entering an inflationary period can do well as the real value of the debt erodes faster.

That's fair. High quality companies with pricing power will have an easier time passing on increased costs of doing business on the other hand.

[@dennista42069]

Interesting video, the only "twist" in the video is that you dont mention the higher risk and fees. The MSCI World Index includes 1,511 companies where the MSCI Quality Index only includes 298 companies! This is a diversification multiple of 5x for the MSCI World. Also, the demographic diversification is lower than the one of the MSCI World. On top of that the TER of the MSCI World is at 0,2% where as the one of the MSCI World Quality is at 0,38%. Those are things that should have been mentionned in this video if you ask me. Every Pro comes with at least one con ;)

Can you briefly share your definition of "risk" before we proceed with the discussion? Yeah, the TER is higher, I should've mentioned that (I'll actually add a pinned comment to the video), but I doubt the TER differential will change the 30-year performance difference.

[@dennista42069]

@ With the risk I of course mean the diversification risk concerning the number of companies and the demographic distribution. As most passive investors are looking to decipt the world economy, this is quite relevant.

So you're definition of risk in this context would be the probability of an investor not achieving his desired return? Depending on your individual goals, adding more stocks will likely increasing that risk. the benefits of adding stocks (in terms of reducing volatility) too diminish fairly quickly. I get your point regarding geographical exposure. But the core MSCI is also heavily concentrated in the US and not depict the world economy. So why not add another quality focused ETF focused on other geographies to a quality MSCI holding?

[@dennista42069]

​@ I am just saying that there is a difference in risk by investing into 298 companies rather then investing into 1,511 companies because with the second option you rather decipt the global economy as you do with the 298 companies. Thats all and therefore the amount of companies in both Indexes should be mentionned.

I'd argue that investing in 300 quality companies is less risky than investing in 1,500 average quality businesses. That's a bit of an exaggeration, but I think you get my point. Let's leave it with that, okay? I appreciate your input and added a pinned comment. @@dennista42069

[@NattyLegend1]

From what I can tell MSCI World has outperformed MSCI World Quality Factor on both 5 year and 10 year basis

[@Messi_CR7885]

The best companies are those who are capital light and don't need to invest capital upfront to grow their cashflow stream. I really like the business characteristics of Meta and the search and youtube business of alphabet.

[@Messi_CR7885]

Or Universal Music. The DSPs (like spot, youtube music etc.) are rolling out their music. So they grow without much investment needed just with continued streaming penetration and price increases executed by the DSPs. Very interesting. They own 1/3 of the music listened to worldwide

Bill Ackman agrees!

[@Kingdia97]

What’s an etf I can buy for msci world quality index?

You literally just have to google this.

[@Kingdia97]

@ couldn’t find one after googling hence the comment lol.

[@dejan6310]

iShares Edge MSCI World Quality Factor UCITS ETF

[@Kingdia97]

@@dejan6310 Thxx man.

[@TheEagleoftheBirdstone]

There is no unfortunately "world quality etf" which follows "msci world Quality index" in market.

[@jamesbyrne9312]

Out performed not Odd performed or Art performed.

I appreciate that

[@jamesbyrne9312]

@ReneSellmann I can't speak German so hey no worries. I wish I could.

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[@Xand3r7]

i still dont understand wich one to hold and why the quality one earns more? so i should just start buying the quality one from now on?

Generally speaking, you should not invest in things you don't understand. Maybe you should consider getting mentored.

[@Xand3r7]

@ i understand the normal all world etf not the quality one