Invesco debuts Europe’s first equal weight MSCI World ETF

Sep 10th, 2024 | By | Category: Equities

Invesco has introduced a new smart beta ETF in Europe, marking the continent’s first fund to provide equally weighted exposure to the flagship MSCI World Index.

Invesco debuts Europe’s first MSCI World equal weight ETF

Each stock in the index has a weight of approximately 0.07% at rebalance.

The Invesco MSCI World Equal Weight UCITS ETF is now listed on the London Stock Exchange, available in both US dollars (Ticker: MWEQ LN) and pound sterling (MWEP LN).

The fund tracks the MSCI World Equal Weight Index, which includes all constituents of the MSCI World — a broad market benchmark composed of over 1,400 large and mid-cap stocks across 23 developed countries — equally weighted and rebalanced on a quarterly basis.

The launch comes amid robust demand for broad-based global equity ETFs with these funds attracting over $35 billion in net new assets year-to-date, making them the second most popular category after US equity exposures.

Advocates of the equal-weight strategy emphasize its ability to mitigate concentration risk, a common criticism of market capitalization-weighted indices. According to Invesco, this approach is especially relevant now, as the top ten holdings in the MSCI World Index currently represent about a quarter of the index’s total weight, the highest concentration seen in over 40 years. In contrast, the MSCI World Equal Weight Index assigns a mere 0.07% weight to each constituent at each quarterly rebalance.

Gary Buxton, Head of EMEA and APAC ETFs and Indexed Strategies at Invesco, commented: “The sharp equity market sell-off in July, while short-lived, reminded investors of how quickly individual company fortunes and sentiment can shift. Our new ETF offers a way to maintain broad exposure to global equity markets while reducing the sensitivity to any single company’s performance.”

Chris Mellor, Head of EMEA Equity ETF Product Management at Invesco, further explained that the equal-weight approach not only spreads risk at the stock level but also provides a more balanced sector and geographic allocation.

Unlike the standard MSCI World Index, which allocates over 70% to the US, the equal-weight ETF allocates approximately 42% to the US, offering greater exposure to markets like Japan, the UK, and other developed countries. The approach also more than halves the weight of stocks from the information technology sector, down from a quarter to 11%, while notably lifting the allocations to industrials and real estate, in particular.

While equal-weighted strategies can underperform in momentum-driven markets or during periods of strong growth for larger firms, the introduction of an equally weighted MSCI World ETF provides a valuable tool for investors. This strategy taps into the small-cap premium — where smaller companies tend to outperform larger ones over time — and capitalizes on market mean reversion, where extreme performers often revert in subsequent periods.

The new ETF comes with an expense ratio of 0.20%.

Invesco also offers two other equally weighted equity ETFs in Europe, based on the S&P 500 and Nasdaq 100 indices.

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