How to Invest in the MSCI Index: A Beginner’s Guide to MSCI ETFs
Trading is full of unfamiliar terms, acronyms, and concepts. ETFs and the MSCI Index are two terms that fall into this category. However, once you understand what they mean and, moreover, why they're powerful trading options, you'll want to start investing.
In this guide, we've explained what MSCI and ETF (exchange-traded fund) are. We've also shown you how to invest in the MSCI Index using ETFs, and offered some tips on how to select the right product. So, if you're ready to learn about these interesting trading options, check out our guide below.
Table of Contents
What is the MSCI Index?
MSCI stands for Morgan Stanley Capital International. Like the Dow Jones Averages or S&P 500, MSCI is an index. Specifically, the MSCI Index is a measurement of stock market performance. In general terms, what this index does is track the performances of stocks for a specified group of companies/exchanges within specified categories or regions.
The Most Popular MSCI Index
Essentially, the MSCI provides a value that relates to the overall performance of the stocks within the index. Within the MSCI Index, there are sub-categories i.e. indices that focus on specific industries, areas, or regions.
While there are many different instruments to consider, the four most popular indices within the MSCI track stock exchanges that exist in the following areas: Emerging Markets, Frontier Markets, Developed Markets and MSCI World Index.
With Admirals, you can trade and invest in a variety of different MSCI Index ETFs covering these areas. You can find the selection through the MetaTrader 5 trading platform for desktop, web and mobile which is provided by Admirals for free.
Once you've downloaded your platform, open the Market Watch window (Ctrl+M on your keyboard), right-click and select Symbols. In this window you can search MSCI to see all the different MSCI Index ETFs available to trade and invest in, as shown below:
A screenshot of the MetaTrader 5 Symbols windows showing the different MSCI Index ETFs available to trade and invest in with Admirals.
The Different Types of MSCI Index
There is a variety of MSCI Indexes to choose from. Most of them will fall into one of the categories listed below.
1. Emerging Markets MSCI Index
This index tracks the performances of stock markets in 26 emerging countries, including Argentina, Brazil, India, Russia, and the UAE. This index takes the market capitalization of all companies listed on stock exchanges in all 26 countries. This, in turn, determines the value of "emerging markets".
2. Frontier Markets MSCI Index
This index focuses on 21 countries that are considered volatile - they aren't developed but they aren't emerging. They sit somewhere in the middle as countries that could break out. In addition to the 21 countries that make up the frontier market, such as Croatia, Morocco, Jordan, and Kenya, there are 11 standalone indexes. These countries, such as Jamaica, and Zimbabwe, are classed as frontier markets, but are listed individually and not part of the larger group.
3. Developed Markets (EAFE Index) MSCI Index
This index covers 21 developed countries, excluding the US and Canada. It covers 85% of the market capitalization of stock markets within each country. Countries listed within the MSCI EAFE Index include Japan, Germany, the UK, France, Australia, Hong Kong, and Singapore.
4. MSCI World Index
This index tracks and measures the performance of 4,500 companies based in 23 countries, including Australia, the UK, the US, Japan, and Hong Kong. The index covers large and mid-cap companies that are described as having a "global" reach. The MSCI World Index is often used as a valuable measurement of how the developed world's stock market is performing.
Below is a screenshot of the Metatrader 5 trading platform provided by Admirals, showing the long-term price chart of the Lyxor MSCI World Index UCITS ETF, just one type available on the platform.
Source: Admirals MetaTrader 5, #WLD, Monthly - Data range: from 1 May 2006 to 28 Mar 2022, accessed on 28 Mar 2022 at 7:00 am BST. Please note: Past performance is not a reliable indicator of future results.
Investing in the MSCI Index Using ETFs
To trade or invest in the MSCI index, investors will typically use an ETF (Exchange Traded Fund) of the index.
What Are ETFs in Trading?
ETF stands for exchange-traded fund. This financial security first became available in 1993. At the time, ETFs were seen as something of a novelty. Today, however, they've become a popular investment option for professionals and retail customers. In fact, the value of all ETF assets under management (AUM) in 2017 was $4 trillion. That was up from $200 billion just 14 years earlier.
In simple terms, an exchange-traded fund (ETF) is a single investment option that's comprised of multiple assets. Perhaps the best way to think about ETFs is that they're an umbrella under which a selection of financial instruments sits. ETFs are, typically, created by large money managers and focus on a particular type of asset.
For example, you can invest in a stock ETF. This fund could contain the stocks of a selection of major companies. When you put money into this ETF, the value of your investment will rise and fall based on the performance of each stock within the fund. To think of it in a different way, you're casting a wide net to catch a group of assets when you invest in an ETF.
So, in this example, you're not putting all of your eggs into a single basket. By choosing an ETF, rather than a stock in an individual company, you're spreading your interests. However, you're doing it in a simple way by making just one investment. In essence, you'll have a portfolio of assets without having to build one yourself through individual investments.
The Advantages and Disadvantages of MSCI ETF Trading
Naturally, there are some negatives and positives in ETFs trading. Firstly, most ETFs are liquid. This means you can buy and sell ETFs during normal trading hours. This is different from ETNs (exchange-traded notes), which are often described as the sister option to ETFs. We won't go into the specifics of ETNs vs. ETFs. However, just know that ETNs are a combination of bonds and derivatives that payout in different ways.
If you're looking for investments you can buy and sell on a daily basis, ETFs are the ones you should try. Naturally, the value of an ETF is derived from the total value of its underlying assets. This can be positive and negative. Continuing our example of a stocks-based ETF, the value of your investment will increase if the values of the stocks within it increases. Similarly, if the values of the stocks decrease, the ETF's value will decrease. Already you can start to see the positives and negatives in this scenario.
The great thing about an ETF is that strong stocks can prop up the weak ones. So, if stocks A, B, C, and D are bullish, but E is bearish, the overall value of the ETF could still increase. Of course, the downside is that it may not make as much money as you would if you invested in each stock option individually. In practice, the gains might be slightly lower. However, the counter to this is that you can spread your risk. This, in turn, allows you to limit potential losses when things aren't going well.
How to Invest in the MSCI Index Using ETFs
You can invest in ETFs for almost every type of financial asset. From stocks and commodities to bonds and other assets. However, ETFs are most commonly associated with indexes. This makes them an ideal way to invest in the MSCI Index.
As we've explained, there are many sub-indexes within the MSCI. Your job is to choose ETFs within an area of interest. As a beginner, that's easier said than done. However, if you follow the steps below, you'll not only be able to invest in the MSCI using ETFs, you'll have a better shot at choosing the right one for you:
1. Create an account at Admirals. Use the " create account" button to start the sign-up process. Enter your details, verify your account, and log in.
2. To get started, you will need to download the MetaTrader 5 trading platform first. You can use the demo trading option to get a feel for online investing and ETFs. Then, once you're confident, you can open a live account and make a deposit.
3. Go get an overview of the MSCI index ETFs available you can visit the Admirals Contract Specification page. Choose a country or area you're interested in and search for MSCI within that region, then scroll through the list of ETF opportunities. Pick one and invest.
Choosing the Right MSCI Market
Choosing the right MSCI Index ETF requires careful consideration. As a beginner, you want the options that offer the lowest risk. Of course, there will always be an element of risk involved in any investment. However, if we go back to the overview of the MSCI and four of its most popular indexes, you can see that the EAFE or World Index are going to be the most stable.
Yes, they're prone to positive and negative fluctuations. However, because they focus on stock exchanges in financially established regions like the US, UK, Germany, and Hong Kong, there are going to be fewer surprises. In contrast, emerging and frontier markets are more of a risk. Because of certain underlying instabilities - be they political, economic, or regulatory, it's a lot harder to predict which way the pendulum will swing.
Many beginners opt to start with the MSCI EAFE Index or MSCI World Index. Once you've decided which index you're going to focus on, you then need to look at the individual ETFs available for that market. For example, here at Admirals, we're a broker for four MSCI World Index ETFs:
- WLD - Lyxor MSCI World UCITS ETF - Dist CFD
- WLDH - Lyxor MSCI World Monthly Hedged to EUR UCITS ETF - Dist CFD
- IWDAU - iShares Core MSCI World UCITS (USD) ETF CFD
- SWDA - iShares Core MSCI World UCITS ETF CFD
Below is a screenshot of the MetaTrader 5 trading platform provided by Admirals, showing the long-term, weekly price chart of the iShares Core MSCI World ETF:
Source: Admirals MetaTrader 5, #SWDA, Daily - Data range: from 8 Jul 2018 to 28 Mar 2022, accessed on 28 Mar 2022 at 11:40 am BST. Please note: Past performance is not a reliable indicator of future results.
As a novice, those options may look confusing. However, Admirals offer a complete breakdown of each one. By viewing the Admirals Contract Specification page, you'll get details of the "contract" you enter into. This "contract" determines the margin (i.e. the amount of funds you'll need to maintain a 1-lot position), the commission you'll pay on each trade, the minimum contract size (how many lots you have to buy), and more. Once you've read through the contract specifications, you can make an informed decision.
For example, if one option has a low margin and you're a small-stakes investor, this could be a good choice for you. Alternatively, if you're someone that wants small spreads, you can focus instead on this area of the contract. Eventually, once you've weighed up all the options, you'll find the ETF that suits you.
Why Invest in the MSCI index?
Investing in the MSCI Index using ETFs is a great way to cover a large number of assets with one simple trading option. To make the best use of them and all they offer, you will need to do your research. As well as making sure you understand what these trading options are, you need to stay up-to-date with the latest financial headlines. The Admirals Analytics hub is the best way to do that.
Alongside trading guides, you'll find live price charts, fundamental analysis, technical analysis, and blogs by experienced traders. When you combine these real-time insights with the catch-all power of ETFs, and your own preferences, you should be well on your way to getting the most out of the MSCI Index.
Why Invest in MSCI Index ETFs with Admirals?
If you are considering investing in MSCI Index ETFs, or would like to invest in other stocks and ETFs from around the world, you may consider the Invest.MT5 where you can:
- Invest in thousands of stocks and ETFs from 15 of the largest stock exchanges in the world.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.