Fidelity Index World - a best-selling global tracker fund

The active versus passive debate has been going on for years, but for customers of Fidelity Personal Investing it was the latter that won out in September with Fidelity Index World being the best-selling ISA & SIPP fund on the platform. This type of global tracker offers significant diversification at a very low cost and provides an easy way to gain exposure to the world’s stock markets.

Objective and approach

Fidelity Index World aims to mirror the performance before fees and expenses of the MSCI World benchmark. It does this by replicating the composition of the index, although in order to reduce the dealing costs it might not hold every single share or exactly match the weightings.

One way to judge the fund is to look at the annualised tracking error, which measures the divergence between the two sets of returns. Over the three years to the end of September this was just six basis points or 0.06%, making them virtually identical, but there is no guarantee that this level of precision will be repeated in the future. ¹

US-dominated benchmark

The MSCI World Index is designed to capture the performance of large and mid-cap stocks across 23 developed markets. At the end of September it had a staggering 1,410 constituents that covered around 85% of the free float-adjusted market value in each country.²

This sounds incredibly diversified, but it is important to be aware that the US accounts for 71.8% of the assets, with the next largest weighting being Japan at 5.6%. The concentration risk also extends to the sector allocation, with Information Technology leading the way at 24.8%, followed by Financials at 15.4%.³

Tech-heavy exposure

Being a tracker fund, the portfolio will closely match the benchmark with virtually identical country and sector weightings. The same is true at the stock level where the ten largest positions account for 24.4% of the assets. These are all listed in the US and include six members of the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft and Nvidia) that have been leading the markets higher due to the boom in Artificial Intelligence.⁴

Some of the high profile tech stocks have recently experienced a bit of weakness and this has had an impact on the performance of the fund. Even though it is an index tracker, investors still need to take a long-term view and be comfortable with the volatility as it will take time for the returns to compound.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of a sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.