World vs World Value (vs World Quality vs World Momentum)
Facts, figures and data (as at 06/2024)
Seriously now? The third post within a few days in the same pattern? Don't you have to look after your child? 🤦
Yes, I do. But in the first article in this series [1] @FlorianoPerlini asked me to compare the MSCI World Index not only with the MSCI World Momentum Index, but also with Quality [2] and Value. And since I was in a giving mood, I complied with this request and end the series with this comparison of World vs Value. At the end there is also a conclusion on World vs Value vs Quality vs Momentum.
All right. Let's get it over with then. Will there be another plot twist at the end this time?
Nope. There is one right now. Just as there are no ETFs on the MSCI World Quality Index [2], there are none on the MSCI World Value Index [3] [4]. Instead, some ETFs use the MSCI World Enhanced Value Index [5] as a basis. This is a shame because the MSCI World Value Index has been around for 50 years and in those 50 years it has outperformed the MSCI World Index by an average of 11.33% vs 10.96% per annum. Even though it has not stood a chance against the MSCI World in the last 10 years.
In comparison, the MSCI World Enhanced Value Index has only been around since 1997, and although it has beaten the MSCI World since its inception, it has performed even worse than the MSCI World Value Index over the last 10 years.
Stop talking, I'm here for the numbers! But this time please compare with an index that actually exists as an ETF.
Okay. Here are the average annual returns of the MSCI World Index, MSCI World Value Index and MSCI World Enhanced Value Index over the last X years:
5 years, World: 13.31%, Value: 9.89%, Enhanced: 9.02%
10 years, World: 9.71%, Value: 6.9%, Enhanced: 5.43%
27 years (Enhanced edition), World: 6.95%, Enhanced: 8.4%
50 years (Value edition), World: 10.96%, Value: 11.33%
I suck at math. Impress me with absolute numbers!
Sorry, this time it will be less impressive.
If you invested USD 10,000 in the MSCI World 50 years ago, you would have invested USD 1,812,685.25 today. If you had opted for the MSCI World Value Index instead, you would now have USD 2,140,969.36.
If you invested USD 10,000 in the MSCI World 27 years ago, you would now have USD 61,359.42. If you had opted for the MSCI World Enhanced Value Index instead, you would now have USD 88,265.42.
So the differences are not that big. In addition, you will probably hear the fees for a value ETF, which will further reduce the advantage.
Hmmm, is the risk at least lower then?
The maximum drawdown of the World over the last 27 years is 57.82%, that of Enhanced Value 62.01%. The Sharpe ratio is 0.36 for the World and 0.42 for the Enhanced Value. Further comparative values can be found at [5]. The comparative figures for the Value Index can be found at [4].
So the facts for World, Momentum, Quality and Value are on the table. Which one should I buy?
All three have proven that it is possible to beat the global equity market with a single index over the long term. In my view, all three are suitable, in combination or on their own, to form the core of a portfolio or to act as satellites. However, there are no ETFs that track the Quality and Value indices. If you opt for an ETF on a related index, it should be analyzed beforehand. Alternatively, the underlying strategy of the index can of course also be pursued with individual shares.
In the case of Value, it is noticeable that it has performed significantly worse than the other two in recent years and has also failed to beat the World Index. Due to the historically better return compared to the MSCI World, the regression to the middle could suggest that Value could perform better again in the near future and Quality / Momentum somewhat worse.
But these are all guesses. Ultimately, everyone has to decide for themselves whether it should be a World, one of the factor indices mentioned, a combination or something completely different. Of course, you could also invest in a multi-factor ETF such as $IBCZ (+0,6%) or $K0MR (+0,24%) for example. However, if you do this, please familiarize yourself with the underlying indices beforehand.
And what do you do now with these findings?
As part of my company pension plan, I have so far saved in a world ETF. I have reallocated 50% of this to a momentum ETF and 50% to a quality ETF. My ETF portfolio will remain unchanged for the time being. As soon as my positions are full, however, I will think again about whether and, if so, which factor I should add to my portfolio in future and with what weighting.
PS: The GIF is for @Alpalaka 😘
sources (the fact sheets are constantly updated, this post is not)
[3] https://www.justetf.com/de/how-to/invest-in-value-etfs.html
[4] https://www.msci.com/www/fact-sheet/msci-world-value-index/06457479
[5] https://www.msci.com/documents/10199/174e3915-2087-4c5b-815b-c1b7ea1ccbbf
