So you’ve decided that you want to invest in a Vanguard index fund – that’s a great first step!
You know you want use Vanguard as the platform and you know that you want an index fund.
But with over 70 Vanguard index funds to choose from – which index fund is the best for you?
In my opinion, the best index funds: FTSE Developed World ex UK and FTSE Global All Cap.
These index funds are diversified globally and invested in companies of all sectors and sizes.
Their performance is great, having an average annual return of 15% over the past 5 years.
They charge the lowest fees, ranging between 0.14-0.23%, not including the platform fees.
In this post, I’ll be comparing the FTSE Global All Cap vs the FTSE Developed World ex UK fund.
I’ll compare these two funds in term of their weighting, performance, fees, and capitalisation.
Finally, I discuss which options may be best for you, and where to find out more information.
Number of Companies
There are a few differences when it comes to comparing Developed World vs Global All Cap.
Firstly, the Global All Cap is invested in emerging markets such as China, India, Russia, etc.
However, on comparison to the Developed World, this is a small percentage i.e. just over 10%.
When it comes to the sectors they are invested in, they are pretty much invested in the same.
The main distinction comes in the difference in the number of companies owned in each fund.
The Developed World=2048 companies vs Global All Cap=6884 companies; a 4836 difference!
Based on this, you may think that the Global All Cap is better because it is more diversified.
Not quite, you have to consider weighting; large companies are allocated a large percentage.
Although Developed World makes up only 30% by companies, it makes up 77% by weighting!
So it looks like there is not much of a difference between the funds in terms of their weighting.
Fund Performance
The second thing to discuss regarding these 2 funds is their performance over the past years.
After all, that is the most important thing – we want to invest in the fund that will grow faster.
However we have no idea which fund will actually perform better based on past performance.
Just because a fund performed better in the past doesn’t mean it will do same in the future.
However, we can still take a look at their past performance in the past years out of curiosity.
The graphs in the image above shows the performance of these 2 funds over the past 5 years.
As you can see, there is very little difference between them, which you may think is surprising.
However, we know the reason for this – they are pretty much invested in the same companies.
Overall, the Developed World fund has done marginally better – but only by a small margin.
We have no idea if it will continue to do well; we have to use past performance as just a guide.
Fees Charged
The third thing to discuss is the difference in fees between Developed World vs Global All Cap.
Vanguard charges a platform fee each year, and each fund also charges an OCF fee each year.
The Ongoing Charge Figure for the Developed World is 0.14% and for Global All Cap is 0.23%.
You may think that therefore you should go for the Developed World– the lower the better?
However, with a difference in fees of just 0.09%, does it really matter which one you go for?
The best way to find this out is to extrapolate what would be the difference in fees over time.
Let’s assume an annual growth of 10% for each fund over a period of 30 years – a long time.
Based on this assumption, you would be better off with the Developed World fund by 2%.
So is the answer clear? You’d go with the Developed World because you’d have more money?
Not exactly – the fees may be lower for the Dev World, but the Global All Cap may grow more.
Market Capitalisation
The 4th thing to discuss is the capitalisation difference between Dev World and Global All Cap.
Unlike the FTSE Global All Cap, the Developed World Index Fund is not an all cap index fund.
What does it mean? Market capitalisation is the size of a company in terms of monetary value.
You take the number of shares of a company x cost per share = total value of the company.
For example, there are 1,034,000,000 Tesla shares (at time of writing) each one costs $896.83.
By multiplying both figures, you get the market capitalisation value of Tesla: $8639.86 billion.
Unlike the Global All Cap, the Dev World includes only medium and large cap size companies.
In the image, there is a big difference between both funds in terms of number of companies.
However when you compare in terms of weighting, you see that there’s only a 23% difference.
Even though Dev World includes less companies, in reality the weighting isn’t much different.
Conclusion
The short and simple answer to which FTSE index fund is better is – either index fund will do!
I know this is probably not the answer you were looking for, but in my opinion, it is the truth.
In terms of costs, there is a 0.09% difference in fees due to the extra cost of more companies.
The Dev World makes up 77% of the Global Cap, the difference being the emerging markets.
In my opinion, either one is a great option – offering a global diversified portfolio at a low cost.
It really does not matter which fund you choose, as long as you pick one and start investing.
To find out more on index funds, check out the book The Simple Path to Wealth by JL Collins.
In the book, the author talks about how he used index funds that allowed him to retire early.
Are you investing in index funds? Which ones are you using? Please share in the comments.
If you have any future blog article suggestions, please let me know in the comments below!
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