vladans / Getty Images  The ACWI is maintained by Morgan Stanley Capital International (MSCI), a leading provider of investment-decision support tools to clients ranging from large pension plans to boutique hedge funds. Many exchange-traded funds (ETFs) use these indexes as bases for their holdings, which has made the acronym ubiquitous in the financial markets. The ACWI includes equities from countries across the globe, including the United States, Japan, the United Kingdom, China, and Canada. The sectors within the index include information technology, financials, healthcare, consumer discretionary, industrials, consumer staples, and energy.

How Investing in the ACWI Works

Investors use the MSCI All Country World Index (ACWI) in a number of different ways. First, the ACWI offers an easy and measurable way for investors to diversify globally. Institutional investors can measure implied bets, quantify home biases, and ensure a fully diversified portfolio, while individual investors can purchase global diversification in a single fund that’s based on the ACWI. Second, institutional investors often use the ACWI as a benchmark for their own portfolios. For instance, pension funds may have a mandate saying they must be globally diversified. Their holdings are then compared to the ACWI to determine whether they meet those objectives. Individual investors can use the same benchmarks to compare different funds to see which offers the best risk-adjusted return. The easiest way for individual investors to gain exposure to the ACWI is through ETFs. Many different ETF providers use the ACWI in various forms, which means there are many different options available. The three most popular providers are:

iShares MSCI ACWI Index Fund (ACWI)iShares MSCI ACWI ex-US Index Fund (ACWX)SPDR MSCI ACWI ex-US ETF (CWI)

Since these funds use the same core index, investors should consider expense ratios and liquidity when deciding on the best option.

MSCI has a number of different variations of its All Country World Index. Choosing the right variation depends on the situation. For instance, a U.S. investor who is looking to diversify into international stocks may want to choose an ex-U.S. index version of the popular index, since they already have exposure to U.S. equities. The three most popular variations are:

MSCI ACWI Investable Market Index (IMI): The IMI covers approximately 9,000 securities in large-, mid-, and small-cap segments, and across style and sector segments in 49 developed and emerging markets.MSCI ACWI All Cap Index: The All Cap Index covers approximately 14,000 securities including large-, mid-, small-, and micro-cap developed markets together with large-, mid-, and small-cap segments of emerging markets.MSCI ACWI Ex Indexes: The Ex Indexes are used to exclude certain countries—usually the primary investor’s home country—since these investors may already have significant exposure to their own country.

International investors should choose the variation that best suits their portfolios by taking into account their existing exposure to certain markets as compared to their target levels of exposure. In the case of individual U.S. investors, the ex-U.S. index may be the most appropriate when looking to build an international-only component to their otherwise domestic portfolio.

Alternatives to the ACWI

While the MSCI ACWI may be the most popular, there are several other indexes used for global exposure. The two most popular alternatives are the Financial Times Stock Exchange (FTSE) All World Index and the S&P World Index, which offer similar diversification and have multiple associated ETFs for individual investors. Popular all-world ETFs include:

Vanguard International FTSE All World ex-US ETF (VEU)Vanguard International Total World Stock Index ETF (VT)iShares S&P Global 100 Index (IOO)Vanguard FTSE All World ex-US Small Cap ETF (VSS)Vanguard Total International Stock ETF (VXUS)