NZAC vs. ACWX: A Capital Allocation Decision on Climate Screening and U.S. Exposure

The choice between NZAC and ACWX is a classic institutional trade-off between thematic alignment and pure geographic diversification. At its heart, the decision hinges on two distinct mandates. NZAC, the SPDR MSCI ACWI Climate Paris Aligned ETF, integrates strict climate screening to meet EU Paris Agreement standards, yet it still includes U.S. equities in its portfolio. In contrast, ACWX, the iShares MSCI ACWI ex US ETF, is a pure-play vehicle that excludes the entire U.S. market, focusing solely on international diversification. For a portfolio manager, this defines the fundamental allocation: a climate-conscious global tilt versus a deep dive into non-American markets.

The scale and cost differences are stark. ACWX operates with a massive $8.4 billion in assets, dwarfing NZAC's $182 million. This size translates directly to liquidity and operational efficiency. ACWX's higher expense ratio of 0.32% is more than double NZAC's 0.12%, a premium that reflects its broader mandate and established market presence. Yet ACWX also offers a tangible yield advantage, with a dividend yield of 2.7% compared to NZAC's 1.9%. This income differential is a key factor for investors prioritizing cash flow from their international allocation.

Performance over the past year further illustrates the divergence. As of January 9, 2026, ACWX posted a 1-year return of 34.2%, significantly outpacing NZAC's 22.0%. This gap suggests the pure international ex-U.S. basket has captured broader global growth, particularly in regions like Asia and Europe, more effectively in that period. However, the longer-term growth of $1,000 shows a different story, with NZAC compounding to $1,501 over five years versus ACWX's $1,267. This implies NZAC's climate-screened approach may have offered a better risk-adjusted return profile over a full market cycle, though the recent outperformance of ACWX is a notable headwind for the climate mandate.

The bottom line is a clear structural choice. NZAC provides a lower-cost, higher-yielding access point for a climate-aligned global portfolio, but its small size and underperformance relative to ACWX in the recent rally are real constraints. ACWX offers superior scale, liquidity, and a proven track record of capturing international growth, but at a higher fee and with a mandate that excludes the world's largest equity market. For institutional capital, the decision often comes down to whether the climate screening premium is worth the liquidity and yield discount, or if pure international diversification justifies the higher cost and U.S. exclusion.

Sector, Risk, and Liquidity Implications

The structural differences between NZAC and ACWX extend beyond cost and geography, shaping their portfolio risk profiles, sector exposures, and trading efficiency in distinct ways. For institutional capital, these factors are critical for portfolio construction and execution.

NZAC's climate screening mandates a more active, growth-oriented strategy. Its portfolio is heavily tilted toward technology, which accounts for 32% of assets in its holdings. This concentration, combined with a turnover rate of 12.00%, signals a fund that is more actively managed and likely rebalancing frequently to meet its Paris-aligned criteria. This active tilt increases idiosyncratic risk, as performance will be more sensitive to the fortunes of a concentrated sector. In contrast, ACWX's mandate is broader and more passive, holding around 1,700 stocks with a more balanced sector mix, including significant weightings in financial services and industrials. Its turnover of just 5.00% reflects a lower-cost, buy-and-hold approach to capturing international diversification.

Liquidity and trading efficiency are where the scale gap becomes a decisive operational advantage for ACWX. With $8.4 billion in net assets, it operates at a scale that dramatically reduces bid-ask spreads and minimizes slippage for large trades. This is a critical factor for institutional investors executing significant allocations. NZAC, with assets of just $182 million, faces higher execution costs and potential difficulty in entering or exiting positions without moving the market. The sheer size of ACWX also provides a deeper order book and greater resilience during periods of market stress.

Both funds exhibit similar market risk, with betas to the S&P 500 hovering around 1.0. This suggests their overall sensitivity to broad equity market moves is comparable. However, their divergent sector tilts will drive different performance paths. NZAC's heavy technology weighting makes it more vulnerable to sector-specific volatility, while ACWX's broader international diversification offers a buffer against concentration risk in any single region or sector. The bottom line is a trade-off between a concentrated, active strategy with higher execution friction and a diversified, passive approach with superior liquidity and lower turnover. For a portfolio manager, the choice depends on whether the potential alpha from NZAC's active tilt justifies the higher trading costs and concentration risk, or if ACWX's structural efficiency and broad diversification better serve the portfolio's stability and execution needs.

Catalysts and Portfolio Integration

For institutional capital, the forward view hinges on validating the core theses of each fund against evolving market dynamics. The primary catalyst for NZAC is the scaling of climate-focused capital flows. Its $182 million in assets makes it a niche vehicle, highly vulnerable to outflows if broader ESG sentiment shifts or if investors perceive the climate screening as a performance drag. The fund's 12.00% turnover rate and heavy technology tilt suggest it is actively managed to meet Paris-aligned criteria, which could attract dedicated thematic capital but also amplifies its sensitivity to sector rotation and liquidity events. The key question is whether the structural demand for net-zero strategies can grow this fund into a more liquid, institutional-grade vehicle.

For ACWX, the key risk is its higher expense ratio of 0.32% relative to newer, cheaper alternatives. While its $8.4 billion in assets provides a durable moat in terms of liquidity and operational efficiency, this premium cost is a persistent drag on net returns. The fund's scale and long history-18 years of operation-create a self-reinforcing cycle of low-cost access and deep diversification, but it must continually justify its fee against the tide of lower-cost passive alternatives. The risk is that its higher cost becomes a relative liability in a market increasingly focused on expense efficiency.

From a portfolio construction standpoint, the institutional view is clear. ACWX remains a core underweight for U.S. equities, serving as the benchmark for pure international diversification. Its scale, liquidity, and yield advantage make it a structural holding for any portfolio seeking exposure to non-American markets. NZAC, by contrast, should be considered a potential overweight within a climate-aware global allocation. Its lower cost, active tilt toward growth, and alignment with long-term decarbonization trends offer a targeted way to express a conviction on the transition. However, its small size and higher turnover demand a tactical, not strategic, allocation. The bottom line is that ACWX provides the essential, efficient building block for international exposure, while NZAC offers a thematic premium that must be earned through superior capital flow and performance execution.