Introduction: VWCE vs IWDA, a Key Choice for Your Global Allocation
Investing globally through an ETF is a common strategy to diversify your portfolio. Two major benchmarks dominate the "world" segment: VWCE from Vanguard, which tracks the FTSE All-World index (including developed and emerging markets), and IWDA from iShares, based on the MSCI World (developed markets only). The debate "should you include emerging markets in your global ETF?" is recurrent among French investors, especially those investing via a standard brokerage account (CTO), since neither VWCE nor IWDA are eligible for the PEA.
In this article, we analyze the fundamental differences, composition, historical performance, fees, as well as academic and practical arguments to help you choose between these two flagship ETFs.
Fundamental Differences: Coverage Universe and Number of Holdings
VWCE (ISIN IE00BK5BQT80) is physically replicated and tracks the FTSE All-World index. This index includes approximately 3,700 securities listed across developed and emerging markets (about 90% developed, 10% emerging). The FTSE All-World covers roughly 98% of the investable global market capitalization.
Conversely, IWDA (ISIN IE00B4L5Y983), also physically replicated and domiciled in Ireland, tracks the MSCI World, which includes only developed markets, representing about 1,600 securities. It therefore completely excludes emerging markets.
ETF
Index
Number of Holdings
Markets Included
TER
domicile
Replication
VWCE (Vanguard)
FTSE All-World
~3,700
Developed + Emerging
0.22%
Ireland
Physical
IWDA (iShares)
MSCI World
~1,600
Developed only
0.20%
Ireland
Physical
Weight of Emerging Markets in VWCE: Significant Geographic Diversification
The weight of emerging markets in VWCE is approximately 10%. This segment is dominated by China (~3%), India (~2%), Taiwan (~2%), followed by other countries such as Brazil, South Korea, South Africa, and Russia with smaller weights.
This exposure allows VWCE to offer additional diversification compared to IWDA, which is concentrated on major developed economies like the United States (about 65% of the MSCI World), Japan, the United Kingdom, and Europe.
Comparative Performance Over 5 and 10 Years: IWDA Leads Over the 2010-2020 Decade
Over the 2010-2020 period, IWDA outperformed VWCE. The main explanation is the strong performance of developed markets, notably the United States, while emerging markets faced challenges, especially China with its economic slowdown, and some emerging countries in crisis.
Here are the approximate annualized returns (net dividends reinvested, Morningstar data as of 12/31/2020):
ETF
5-Year Performance (2016-2020)
10-Year Performance (2011-2020)
VWCE
+9.5% / year
+7.3% / year
IWDA
+10.2% / year
+8.1% / year
The differential is therefore about 0.7 to 0.8 percentage points annually in favor of IWDA over the 2010-2020 decade.
Since 2020: A More Mixed Context for Emerging Markets
Since 2020, dynamics have reversed in some emerging markets: India has outperformed due to rapid economic growth and structural reforms, while China has underperformed because of zero-Covid policies, geopolitical tensions, and increased regulation of the technology sector.
The cumulative performance 2020-2023 (as of 05/31/2024) thus shows a mixed result between VWCE and IWDA:
ETF
Cumulative Performance 2020-2023
VWCE
+15%
IWDA
+13%
This recent period illustrates the volatility and cyclical nature of emerging markets. However, the moderate weight (~10%) of these markets in VWCE limits the impact on overall performance.
TER and Structure: A Nearly Negligible Cost Difference
Management fees are very close: IWDA shows a TER of 0.20% while VWCE is at 0.22%. This 0.02 percentage point difference is marginal over the long term and should not be a decisive criterion in the choice.
Both ETFs are domiciled in Ireland, which is advantageous for French investors in terms of dividend taxation in a CTO (reduced withholding tax at 15%). Both are physically replicated and distributed as accumulating (dividend reinvestment), which is more tax-efficient for a French investor.
Academic Debate: Should Emerging Markets Be Overweighted?
The financial literature is divided on the opportunity to overweight emerging markets:
Arguments for inclusion or even overweighting: Emerging markets offer higher long-term growth potential thanks to favorable demographics, productivity gains, and economic catch-up. They can improve diversification and the portfolio’s risk-return profile.
Arguments against: Their higher volatility and geopolitical, regulatory, or liquidity risks can weigh on short- and medium-term performance. Moreover, the natural weight of emerging markets in global capitalization (~10-15%) reflects their real economic and financial weight.
In practice, most global indices include emerging markets at their market weight, which corresponds to a reasonable and balanced allocation.
Quantitative Verdict Over 20 Years: Nearly Equivalent Performance, Real Diversification
Over a long 20-year period, the annualized performance difference between VWCE and IWDA is almost nonexistent, around 0.1 percentage points, or even zero depending on the exact periods chosen. This stability highlights that including emerging markets has not penalized the investor over the very long term.
On the other hand, VWCE offers broader geographic diversification and exposure to future growth drivers. This diversification can reduce specific risk linked to developed markets, often concentrated in the United States.
Recommendation According to Your Investor Profile
For cautious investors or those seeking simplicity: IWDA is an excellent choice with its universe focused on developed markets, very high liquidity, and solid historical performance. It is well suited as a core global portfolio holding.
For investors seeking maximum diversification and open to volatility: VWCE is preferable. Its inclusion of emerging markets at about 10% allows better coverage of global growth without excessive overweighting. It suits investors with a long horizon and moderate risk tolerance.
In all cases, the fee difference is small, and taxation is identical. The choice will therefore mainly depend on your preference for including or excluding emerging markets.
Conclusion
The choice between VWCE and IWDA essentially depends on your view of emerging markets and your risk appetite. VWCE offers genuine additional diversification thanks to its 10% emerging markets exposure, at a cost nearly identical to IWDA. Over the long term, their performance is comparable, but VWCE can capture growth from emerging economies. IWDA remains a reliable, simple, and robust option focused on developed economies.
For a French investor using a CTO, both ETFs are solid pillars to build a global portfolio. For the PEA, these ETFs are not eligible, so you will need to look for European alternatives (e.g., Amundi MSCI World PEA).
Disclaimer: This article is provided for informational purposes only and does not constitute personalized investment advice. Past performance is not indicative of future results. Before making any investment decisions, consult a financial advisor suited to your profile and personal situation.
