The numbers are stark: while Euro Stoxx 600 ETFs delivered +20% returns in 2025, MSCI World ETFs in euros managed a meager +6.4%. That 14-percentage-point gap didn’t happen because European companies suddenly became dramatically more profitable. It happened because of two words that many passive investors in France prefer to ignore: currency risk and concentration.
The uncomfortable truth? Your MSCI World ETF is essentially a US tech bet with some international garnish. The index holds 71% US stocks, with the top ten holdings, NVIDIA, Apple, Microsoft, Amazon, accounting for over 26% of the entire portfolio. When Donald Trump signaled his desire for a weaker dollar, that wasn’t just political rhetoric for eurozone-based investors, it was a warning that the currency tailwind of the past decade could reverse.
The Currency Drag: When EUR/USD Becomes Your Portfolio’s Boss
In 2025, the dollar fell over 12% against the euro. For French investors holding USD-denominated assets, that meant every dollar of returns translated to fewer euros. The MSCI World Index itself gained 21.6% in gross terms, but after currency conversion and fees, European investors saw less than a third of that.
This isn’t theoretical. As one analysis noted, the iShares MSCI World ETF (URTH) delivered 21.28% in 2025, but that was in USD. The euro version, hedged or unhedged, told a different story.
The debate raging across French investment forums centers on whether this is predictable. Some argue Trump’s dollar-weakening policy makes this a persistent trend. Others counter that currency forecasting is a fool’s game, pointing to previous years when the euro collapsed and US-only strategies paid off.
What’s undeniable is that prélèvement à la source (pay-as-you-earn withholding) doesn’t protect you from this volatility. Your French tax obligations are calculated in euros, and so should your risk assessment be.
Concentration Risk: The “World” That’s Really America
The MSCI World Index was designed to represent developed markets. In practice, it represents American tech giants. The geographic breakdown:
- United States: 72.19%
- Japan: 5.40%
- United Kingdom: 3.56%
- Canada: 3.27%
- France: 2.64%
For French investors using a PEA (Plan d’Épargne en Actions, the French stock savings plan), this creates a double concentration problem. Not only are you betting 72% on one country, but you’re doing so in a vehicle that already has home bias limitations. French investors often pair MSCI World with a CAC 40 ETF, but this barely dilutes the US exposure.
The sector concentration is equally extreme. Information technology represents 27.27% of the index, with combined tech exposure exceeding 36% in some calculations. When AI enthusiasm drove NVIDIA to become the largest position at 5.37%, it wasn’t a sign of diversification, it was confirmation that your “global” ETF is a thematic tech play.
The European Advantage: Why Home Bias Paid in 2025
The Euro Stoxx 600’s +20% return wasn’t just currency luck. European markets benefited from:
- Weaker euro boosting export competitiveness
- Lower starting valuations compared to stretched US multiples
- Sector composition favoring industrials and financials over tech
- Defense spending increases and energy transition investments
For French investors, this created a perfect storm where domestic and European exposure outperformed. The question is whether this is sustainable or mean reversion will eventually favor US markets again.
This is where critique of herd behavior in French ETF selection beyond top-sellers becomes relevant. Many investors piled into MSCI World because it was the default recommendation, not because they analyzed the currency and concentration risks. The same pattern emerges when you look at record surge in French retail ETF investors and associated risks, 359,000 new investors in Q3 2025 alone, many replicating strategies they don’t fully understand.
The Hedging Dilemma: No Free Lunch in a PEA
French investors have limited options to hedge currency risk within a PEA. You can’t hold direct forex positions, and most hedged ETFs are either unavailable or tax-inefficient in this wrapper. Some turn to CTO (Compte-Titres Ordinaire, standard brokerage account) for more flexibility, but that means forfeiting the PEA’s tax advantages.
The alternatives aren’t perfect:
– Euro-hedged MSCI World ETFs: Higher fees (0.50%+ vs 0.24%) and tracking error
– Regional splits: Combining Euro Stoxx 600, FTSE 100, and Nikkei ETFs creates rebalancing complexity
– Equal-weighted World ETFs: Reduce concentration but increase turnover and costs
What’s clear is that the lack of hedging tools in French PEA accounts during market downturns becomes a critical vulnerability when currency moves against you. The PEA’s tax benefits come with strings attached, and those strings can bind your hands when you need flexibility most.
The Strategic Rethink: What Should French Investors Do?
The controversy isn’t about abandoning global diversification. It’s about recognizing that MSCI World is a US-dollar-denominated, US-concentrated, tech-heavy strategy masquerading as global balance.
For French investors, consider:
1. Size your currency risk consciously
If 72% of your portfolio is in USD assets, you’re making a massive currency bet. Either hedge it explicitly or treat it as a speculative position, not passive diversification.
2. Question the default recommendation
The signs of retail investing mania in France as ETFs go mainstream show that what’s popular isn’t necessarily prudent. Your cousin mentioning DCA (Dollar Cost Averaging) at a family dinner doesn’t make MSCI World the right choice for your risk profile.
3. Use PEA-eligible European alternatives
The Euro Stoxx 600 and CAC 40 ETFs in your PEA offer genuine eurozone exposure without currency conversion drag. They also qualify for the PEA’s tax advantages, which can add 0.5-1% annually in after-tax returns.
4. Diversify across factors, not just geographies
Consider mixing:
– Developed Europe (home bias with tax benefits)
– Currency-hedged US exposure (if available in CTO)
– Emerging markets (for growth diversification)
– Small-cap value (to offset large-cap growth concentration)
5. Understand your time horizon
As some analysts note, long-term investors might view current USD weakness as a buying opportunity. But that assumes you can stomach continued volatility and have the horizon to wait for mean reversion.
The Verdict: Global Yes, MSCI World Maybe
The 2025 performance gap doesn’t prove that global diversification is dead. It proves that naive diversification, buying a single ETF and calling it a day, exposes you to concentrated risks you might not realize you’re taking.
For French investors, the math is clear: holding a USD-heavy, tech-concentrated index in a euro-based life introduces unnecessary volatility. The personal journey from traditional French investing to evidence-based ETF strategies often begins with this realization: what your bank recommended wasn’t optimized for your currency or tax situation.
The controversy will continue. Some will point to geopolitical concerns over holding ETFs via U.S. brokers like Interactive Brokers as another reason to reduce US exposure. Others will argue that US tech dominance justifies the concentration.
What’s undeniable is that the “set it and forget it” MSCI World strategy worked brilliantly during a decade of US outperformance and dollar strength. As those trends reverse, French investors need to ask harder questions about what “global” really means in their portfolio.
Your move: Either treat MSCI World as the US tech position it is, or build a truly diversified global portfolio that respects your home currency and tax situation. The middle ground, believing you’re diversified when you’re not, is the most dangerous place to be.
The next evolution in this debate centers on whether growing interest in FIRE movement driving French investors toward ETFs for independence will accelerate demand for more sophisticated, currency-aware strategies, or simply replicate the same mistakes at scale.
