S&P 500 or IWDA ETF

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Which one to choose and why?


The key difference is in geographical diversification. IWDA is the whole world, which can be a good or bad thing, depending on how you see it. IWDA geographical allocation is 60% in the US, which basically says: 60% of the world market cap is listed in the US (though it may be said that this is biased towards giant and large-cap companies).



But then, not all of these US-listed companies’ primary business is in the US. There are many international companies that choose to list on US stock exchanges as well. Alibaba is one of them. So you can say that SPX is not entirely made up of US companies (so your exposure is partly international) and that IWDA is like SPX combined with international large companies listed on international exchanges.

As to performance, international markets generally have lower risk-adjusted returns. In other words, they have greater volatility (or other measures of risk) for the same return. Therefore, it is expected that IWDA may have a lower return for some periods, and higher for some other periods. The US is also still the world’s largest economy and SPX also includes some of the largest international companies, so it can be said that it includes “the rest” that did not or weren’t able to list in the US.

Both funds are suited to the whole market indexing strategy and either will work. The key judgment points in my view on choosing one over the other Is whether one believes that:



  1. International markets would grow at a greater pace over time for the same risk vis-à-vis the US alone; and
  2. International stock exchanges would attract and retain and grow capital at a greater rate compared to the US (I would think some prerequisites for that to happen are more stability and regulation in international markets).

Whatever happens in the US will affect both indexes. IWDA is 60% US and the fact is the US economy still affects the whole world. Therefore, it isn’t the key differentiating factor between both funds. Both are available as Irish-domiciled ETFs. IWDA is IWDA, and SPX has CSPX (CSSPX on IBKR) and SPXS, among many others. Differences may be in their replication strategy or even simply the size or age of the fund.



Conclusion

In terms of 5 years performance, S&P 500 has a better return compare to IWDA.

S&P and IWDA

However, my risk appetite is low to mid-level. I’ll choose IWDA as it is not totally in the US market and there is room for taking of effects shall anything happen in the US. Adding on, the growth of the international market will be at a greater pace.

Author: The Financial Guy

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