The MSCI World ETF’s Tech-Driven Ascent and Concentration Risk

Global equity markets continue their relentless climb to new peaks, but a significant shift in leadership is unfolding beneath the surface. The iShares MSCI World ETF, boasting a gain of nearly 20 percent since the start of the year, reflects this rally. However, the engine of this performance has changed: Nvidia has now displaced the former giants, Apple and Microsoft, to become the fund's single largest holding. While investors are capitalizing on the technology surge, they are simultaneously acquiring a portfolio with historically high concentration levels.

The current market advance is fueled by more than mere speculation. It is supported by concrete earnings growth within the artificial intelligence sector. Unlike previous hype cycles, the substantial revenue generated from AI infrastructure and software is substantiating the share price gains of major U.S. technology firms. This fundamental strength comes at a cost, however. The fund now trades at a premium valuation, with a price-to-earnings (P/E) ratio exceeding 26, a level that sits significantly above its historical average.

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

A Reshuffled Hierarchy and Rising Risks

A pivotal change occurred during the index's recent rebalancing, cementing Nvidia's new position at the top. This shift underscores the critical importance of the semiconductor industry to the global economy. This trend was further amplified by the November inclusion of new infrastructure-focused companies like CoreWeave. The consequence of this dominance is a pronounced concentration risk: the ten largest positions within the ETF now account for almost 28 percent of the entire portfolio.

While this strategy is currently paying off, it also renders the fund more vulnerable to any potential downturn in the technology sector. The upward trajectory is likely to persist as long as the profits of the leading "hyperscaler" companies continue to grow and the interest rate environment remains stable. Given the current premium valuation, however, there is little room for disappointment in future corporate earnings. Any shortfall could prompt a sharp reassessment.