Invesco FTSE All World ETF (Better Than Vanguard?)

Who would have thought, we finally have some competition in ETFs covering the FTSE All-World index, my personal favorite way to easily invest into thousands of stocks from all across the world.

Last month Invesco, another well-known and experienced fund provider, joined the party by launching the Invesco FTSE All World in both a distributing and accumulating version.

But that’s not the exciting part. Invesco decided to rock the boat by offering its ETFs at a significantly lower total expense ratio: 0,15% compared to Vanguard’s 0,22% per year!

It may not look like much, but in percentage terms, that’s a 32% reduction in fees, which is quite significant! As a result, you might be wondering if buying Invesco’s ETF is now the better option.

So, is VWCE and chill still a viable investment strategy for stocks or will all the cool kids be saying FWRA and chill soon? Let’s take a closer look and find out!

(VWCE = Vanguard FTSE All-World Accumulating, FWRA = Invesco FTSE All-World Accumulating)

Why is the Vanguard FTSE All-World so popular in Europe?

First of all, why has the Vanguard FTSE All-World become so popular among European investors?

Well, it represents an easy, passive and inexpensive way to invest into a grand total of >3.600 stocks from all across the world, weighted based on each stock’s market-capitalization. And it doesn’t only contain developed markets like you would find in the MSCI World index for example, but also emerging markets like India, China, Taiwan or Brazil.

As a result, no matter where the best publicly listed companies come from in the future, we’re able to get our share of their growth and profits. Thus, many investors consider this to be the easiest way to invest long-term while keeping things as simple as possible, as you just need a single ETF to diversify your investment within the global stock market.

Vanguard’s Accumulating FTSE All-World ETF (ISIN: IE00BK5BQT80, VWCE), the one my wife and I buy on a monthly basis, has enabled us to do exactly that for a few years now, while charging low fees in form of a total expense ratio of only 0,22% per year.

In case you’re wondering, I usually buy it using my favorite low-cost broker in Europe, Interactive Brokers.

Total expense ratio (TER) and tracking difference

What exactly is the total expense ratio (in short TER) is in the first place?

It represents the total costs associated with managing and operating a fund. In our case we’re talking about ETFs that passively track an index, which is why expenses are kept to a minimum.

You never actually see these fees anywhere, they’re hidden within the ETF’s performance.

But that’s not the full story, we also need to look at the tracking difference, meaning how closely an ETF is able to replicate its benchmark (so the index) performance.

The site trackingdifferences.com is a great resource to compare tracking differences among ETFs.

As you can see above, the best ETF providers (like Vanguard) manage to perform even better than their underlying index some years.

In this example I’m using the Distributing Vanguard FTSE All-World ETF, since it has a longer history than the accumulating version. You would expect to see a tracking difference of at least 0,22% which is its total expense ratio, and yet it’s -0,02% on average since 2013!

As the website points out, “the ETF was less expensive than the TER suggests and even exceeded the index performance”. So it’s basically as if you didn’t pay any fees to the fund provider (Vanguard) at all, which is fantastic.

Thus, while at first glance the 32% lower expense ratio of 0,15% for the new Invesco FTSE All-World looks better compared to Vanguard’s 0,22%, now you understand that this is not the only thing that matters.

The actual tracking difference, so how closely the ETF is able to track the index over time, is way more important than the TER and we simply don’t have that information yet for Invesco’s new funds since they were just launched.

Fund size (risk of liquidation?)

Speaking of that, there’s another important factor to consider, an ETF’s fund size.

Since Invesco’s ETFs have just been launched, their fund size is still tiny, at only 7 and 1 million euros respectively according to JustETF. If the funds remain relatively small, for example below a size of 100 million euros in a few years, they’re at risk of being dissolved, since they need to reach a certain size to cover the costs of operation.

Now, fund liquidations in themselves are not a big deal, all the stocks within the ETF are sold after which each investor gets the value of their ETF shares paid out to their account.

However, this can come with other negative implications – from a taxation perspective, this is counted as if you had sold your shares. This means you now have to fully tax any capital gains you generated from this ETF position already in your country of residence, instead of for example later in retirement, when you actually need the money.

As a result, after taking taxes into account, you now have less money left over working for you when you decide to move it into another ETF.

Now, compared to Invesco’s minuscule 7 and 1 million euro fund sizes, Vanguard’s two ETFs have 6.960 million, so 6,96 billion euros and 10,2 billion euros in assets under management respectively:

At that size, they’re unlikely to ever be liquidated, making them the far safer choice for the long-run at the moment.

Spread (hidden trading costs)

The fact that the new ETFs have a significantly smaller number of investors and thus less liquidity is also reflected in the spread when buying and selling shares on exchanges.

You generally want this spread to be as low as possible. That way you ensure you’re not overpaying when buying and not getting less than your shares are worth at the point of selling.

Based on my research over a few full trading days, Invesco’s ETFs still come with a much higher average spread of between 0,18-0,26% on the largest European exchanges, compared to only 0,02-0,04% on average for the Vanguard counterparts:

Again, Vanguard wins this round by a large margin.

Where can you buy the Invesco FTSE All-World ETF?

This brings me to my second to last point, availability. If you’re a long-term investor like me, you probably want to be able to regularly invest into your ETF of choice as easily as possible, while keeping fees to a minimum.

So let’s have a look at the situation using my two favorite low-cost brokers right now:

On my personal #1 Interactive Brokers you’re of course able to find and directly buy the new Invesco ETFs as either the accumulating (FWRA) or distributing (FTWD) version and obviously both Vanguard ETFs (VWCE and VWRL), with the one I buy every month being the accumulating Vanguard FTSE All-World (VWCE).

On Interactive Brokers, the two Vanguard ETFs come with two recently introduced features that are currently still missing from Invesco’s counterparts.

You can buy fractional shares as well, not just full shares, meaning you can fully invest whichever amount you want to put to work and you can set up recurring investments to automatically invest some money into the Vanguard FTSE All-World at regular intervals. That’s exactly what I’m doing as well.

Meanwhile, all four ETFs can be found on another excellent low-cost broker, Trade Republic as well. And here you’re not only able to set up saving plans for Vanguard (VWCE = Accumulating, VGWL = Distributing) but also for Invesco’s new ETFs (FWIA = Accumulating, FTWD = Distributing) already.

I’m actually impressed that they were added to their free ETF saving plans already, after all they were launched less than one month ago.

Invesco FTSE All-World vs. Vanguard FTSE All-World: Which one is better?

Anyway, now that we spent some time taking a closer look at the ETFs, let’s get back to the question we asked ourselves in the beginning:

Are Invesco’s FTSE All-World ETFs now the better option compared to Vanguard because of their lower fees?

If you read the rest of my comparison, you can probably guess that my answer is no. Still, here is a short recap of my top 3 reasons why:

1. The total expense ratio (TER) isn’t the only thing that matters, the tracking difference is a lot more important. Here Vanguard has done an excellent job so far and we still need to wait and see how Invesco will perform in this regard.
2. The Invesco FTSE All-World ETFs only have a tiny fund size right now. I think it makes sense to wait until they reach at least 100 million euros in assets under management, to reduce the risk of the funds being liquidated due to them not being able to cover their costs of operation yet. Meanwhile, Vanguard’s two ETFs have billions in assets under management, so this is not an issue.
3. Due to much lower liquidity, the spread between buy and sell prices for Invesco’s ETFs is almost 10x higher right now compared to the popular Vanguard ETFs. As a result, you may end up paying a bit more than you should for your Invesco FTSE All-World shares.

Why more ETF competition is great for us investors

That being said, there is still reason to celebrate!

The fact that Invesco launched these competing ETFs is great for us investors, as it drives costs lower over time.

I actually reached out to Vanguard to ask about their future plans regarding their All-World ETFs. While they couldn’t give me an exact timeline, they did mention that they will reduce its TER further over time.

The last time they reduced this ETF’s fees was in October 2019, from 0,25% to 0,22% per year. So who knows, perhaps we see another update this October already!

A good Vanguard FTSE All-World alternative?

But that’s not all, Invesco wasn’t the only fund provider putting some pressure on Vanguard this year.

State Street also massively reduced the TER of its SPDR MSCI ACWI IMI ETF (SPYI) from 0.4% to 0.17% a few months ago. The MSCI ACWI IMI is another index that’s very close to what the FTSE All-World covers, while including more Small Cap stocks.

Its performance has been almost identical since 2015.

Thus, it’s another excellent solution to invest into the global stock market via single ETF. Because of its age, size and higher liquidity leading to tight spreads of only 0,05%, I actually consider this to be a much better alternative to Vanguard’s FTSE All-World than Invesco’s new funds right now.

Just be aware that it’s only available as an accumulating version, which automatically reinvests dividends into more shares of the stocks within the index.

VWCE and chill.

And this pretty much concludes what I wanted to talk about today!

Personally, I don’t see any reason to change my 1-ETF investing strategy anytime soon. It’s still VWCE and chill for me as well as my wife.

But how about you guys? Let me know in the comments below!