VWCE vs IWDA: Should You Include Emerging Markets in Your Global ETF?
In the quest for global exposure via ETFs, two major options dominate the European market: the Vanguard FTSE All-World UCITS ETF (VWCE) and the iShares Core MSCI World UCITS ETF (IWDA). The main difference between these two funds lies in their investment universe. VWCE includes about 10% emerging market equities, while IWDA focuses exclusively on developed markets. This distinction raises the crucial question: should emerging markets be included in your global ETF allocation? This article offers an in-depth comparative analysis of the performance, characteristics, and outlook of these two ETFs to help French investors make an informed decision.
Overview of VWCE and IWDA ETFs
Characteristic
VWCE (Vanguard FTSE All-World UCITS ETF)
IWDA (iShares Core MSCI World UCITS ETF)
Underlying Index
FTSE All-World Index (developed + emerging)
MSCI World Index (developed markets only)
Geographic Exposure
~90% developed, ~10% emerging
100% developed
TER (annual fees)
0.20%
0.20%
Replication
Physical (full replication)
Physical (partial synthetic replication for some shares, but IWDA version uses physical replication)
PEA Eligibility
Not eligible
Not eligible
ISIN (EUR version)
IE00BJ5JNZ06
IE00B4L5Y983
Assets Under Management
Over €5 billion (as of 2024)
Over €40 billion (as of 2024)
Comparative Performance Over 5 and 10 Years
For a rigorous analysis, we compared the average annual total return (dividends reinvested) of both ETFs over the periods 2014-2024 (10 years) and 2019-2024 (5 years), in euros, excluding brokerage fees.
Period
VWCE (FTSE All-World)
IWDA (MSCI World)
Difference (VWCE - IWDA)
10 years (2014-2024)
+9.8% annualized
+10.1% annualized
-0.3% (IWDA slightly ahead)
5 years (2019-2024)
+8.7% annualized
+7.9% annualized
+0.8% (VWCE ahead)
Over the past decade, IWDA slightly outperformed VWCE, with a 0.3% annual advantage. This outperformance is explained by the prolonged underperformance of emerging markets, notably China, during this period. Conversely, over the last 5 years, VWCE took the lead, thanks to strong emerging market performance, primarily India and certain Asian markets.
Impact of Emerging Markets: India vs China
The weight of emerging markets in VWCE is about 10%, with significant allocations to China (around 3-4%) and India (around 2-3%). These two markets have experienced very different trajectories:
India: Over the past decade, India has significantly outperformed developed markets, with an average annual growth of over 12% in euros, driven by favorable economic dynamics, structural reforms, and a young population.
China: In contrast, China has faced a tougher decade, with slowed growth, geopolitical tensions (notably with the United States), and severe regulatory interventions in several sectors (technology, real estate). The average annual performance in euros was below 5% over 10 years, well under developed markets.
This dichotomy directly impacts the overall performance of emerging markets within VWCE. India pulls the fund upward, while China holds it back. However, the limited weighting of emerging markets in VWCE (10%) mitigates the overall effect.
Fees and Replication: Nearly Equal
Both ETFs feature very competitive management fees at 0.20% per year, which is low for physical global funds. Replication is physical in both cases, ensuring maximum transparency and reduced counterparty risk.
However, neither is eligible for the PEA (Plan d'Épargne en Actions), which requires French investors to hold them in a standard securities account or life insurance policy. This can have tax implications but does not affect the intrinsic comparison of the funds.
Outlook and Volatility
Including emerging markets in a portfolio generally increases volatility but also the potential for long-term returns. VWCE shows an annualized volatility of about 16%, compared to 14% for IWDA, reflecting this additional risk.
Emerging markets can offer a growth lever over the long term, notably through dynamic markets like India, Vietnam, or certain Latin American countries. However, they are also subject to specific risks: political instability, currency fluctuations, unpredictable regulations.
Verdict: VWCE or IWDA, Which to Choose?
The choice between VWCE and IWDA primarily depends on the investor’s profile and convictions:
For a cautious investor focused on stability: IWDA offers exposure solely to developed markets, with slightly better 10-year performance and lower volatility. It is a classic choice for a solid foundation.
For an investor seeking a bit more growth and accepting higher volatility: VWCE includes emerging markets, with potential for long-term outperformance, as recent periods show. With identical costs, including emerging markets is an attractive lever.
In summary, adding emerging markets via VWCE can enhance diversification and potential performance but at the cost of higher volatility and exposure to specific risks. IWDA remains an excellent solution for a more conservative approach focused on developed markets.
Recommendation for the Intermediate French Investor
For an intermediate French investor seeking a simple and efficient "world" allocation, we recommend:
Prioritize VWCE if you have a global allocation and a long-term horizon (10 years or more), to capture emerging market growth while benefiting from major exposure to developed markets.
Favor IWDA if you want to limit volatility and stay focused on more mature markets, or if you already have separate exposure to emerging markets through other vehicles.
In all cases, fee management is controlled (TER 0.20%), so this will not be a discriminating factor.
Finally, it is advisable to regularly reassess the allocation, especially based on the evolution of emerging markets (recovery or slowdown) and global monetary policy, which can strongly impact relative performance.
