The MSCI World ETF: A Concentrated Bet at Lofty Valuations

The iShares MSCI World ETF (URTH) has started 2026 with a 2.00% gain, buoyed by continued economic strength in developed nations. However, this solid performance masks a significant valuation concern. The fund's underlying index is currently trading at a price-to-earnings (P/E) ratio of 24.5, a level substantially above its long-term historical average. Investors are paying a considerable premium for the perceived safety of established markets, even as the ETF's reliance on the U.S. technology sector grows more pronounced.

The trading landscape for this ETF is set to improve following a January announcement by the New York Stock Exchange. The exchange plans to introduce options trading on the MSCI World Index, a move expected to enhance liquidity and provide institutional investors with more sophisticated hedging tools. Currently, the URTH ETF trades efficiently, with its market price closely tracking its net asset value (NAV).

The fund's trajectory for the remainder of Q1 2026 appears heavily dependent on the earnings reports from major technology holdings. Should giants like Nvidia or Apple fail to meet the market's elevated expectations, the ETF's concentrated nature could precipitate a sharper correction compared to broader market indices. Furthermore, the quarterly index review scheduled for February is likely to generate increased trading volume as the weightings of the largest tech constituents are recalibrated.

A Disguised U.S. Tech Portfolio

Despite holding over 1,300 positions, the fund's performance is dictated by a narrow group of U.S. corporations. Portfolio concentration is exceptionally high: the top ten holdings alone account for approximately 26.45% of total assets. Leading this group are Nvidia (5.36%), Apple (4.52%), and Microsoft (3.80%).

Should investors sell immediately? Or is it worth buying MSCI World ETF?

In effect, investors are not acquiring a broadly diversified global fund but a portfolio with intense U.S. exposure, which constitutes about 70% of assets. This composition causes the ETF to correlate more closely with the S&P 500 than with a genuinely global basket of equities. Other developed nations, such as Japan (roughly 5.5%) and the United Kingdom (around 3.5%), contribute minimally to returns, especially when compared to the influence of the so-called "Magnificent Seven" tech stocks.

The Cost of Outperformance and Narrow Focus

The URTH ETF distinguishes itself from broader global competitors by explicitly excluding emerging markets. This strategy has recently delivered results; the fund posted a yearly gain exceeding 22%, outperforming rivals like the Vanguard Total World Stock ETF (VT), which was weighed down by struggling markets such as China.

This focused approach, however, comes at a cost. With a total expense ratio (TER) of 0.24%, the iShares product is significantly more expensive than comparable offerings like the Vanguard VT ETF, which charges 0.06%. The lofty valuation of the underlying MSCI World Index also introduces substantial downside risk. The current P/E of 24.5 reflects extremely optimistic projections for the technology sector—disappointments are rarely forgiven at such premium levels.