MSCI Inc

What is 'MSCI Inc'

MSCI Inc is an investment research firm that provides indices, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds. MSCI provides its clients with investment tools from Barra, Financial Engineering Associates, RiskMetrics, Institutional Shareholder Services, Measurisk, and the Center for Financial Research and Analysis. It also publishes indices that are widely available to the investing public.

BREAKING DOWN 'MSCI Inc'

One of the units of Capital Group, an investment firm based in Los Angeles, was Capital International (CI) which introduced a number of stock indices in 1969 to mirror the international markets. The Capital International indices were the first global stock market indices for markets outside the U.S. When Morgan Stanley (MS) bought the licensing rights to CI’s data in 1986, the acronym MSCI was formed, and Morgan Stanley became MSCI’s largest shareholder. In 2004, MSCI acquired Barra, a risk management and portfolio analytics firm, for approximately $816.4 million. The merger of both entities resulted in the firm called MSCI Barra.

MSCI Barra was spun off from Morgan Stanley in a 2007 initial public offering (IPO). The firm trades on the New York Stock Exchange (NYSE) under the stock ticker ‘MSCI’. Since its first trading day in November 2007 when it traded for $23.00, MSCI’s stock price has increased by 455% to $127.71 in November 2017. The firm became a fully independent, stand-alone public company in 2009.

MSCI Indices

MSCI is perhaps best known for its benchmark indices. Its top indices are:

  1. MSCI Emerging Market Index: This index was launched in 1988 and lists constituents from 24 emerging economies including China, India, Thailand, UAE, Colombia, Peru, and Greece.
  2. MSCI Frontier Markets Index: The Frontier index is used as a benchmark to measure the performance of the financial markets in select countries from Asia, Middle East, Africa, South America, and Europe. Some of the frontier regions with stocks included in this index are Nigeria, Argentina, Croatia, Lebanon, Vietnam, and Kenya.
  3. MSCI All Country World Index (ACWI): The ACWI tracks the performance of small- to large-cap stocks from 23 developed and 24 emerging markets, with 2,491 stocks represented.
  4. MSCI EAFE Index: The EAFE Index lists 926 stocks from 21 countries in the Europe, Australasia, and Far East regions in the world.

The MSCI indices are market cap weighted indices, which means that stocks are weighted according to their market capitalization, calculated as stock price multiplied by total number of shares outstanding. Therefore, the stock with the largest market capitalization gets the highest weighting on the index. This reflects the fact that large-cap companies have a bigger impact on an economy than mid- or small-cap companies. A percent change in the price of the large cap stocks in an MSCI index will lead to a bigger movement in the index than a change in the price of a small-cap company.

Each index in the MSCI family is reviewed quarterly and rebalanced twice a year. Stocks are added or removed from an index as analysts within MSCI Inc. ensure that the index still acts as an effective equity benchmark for the market it represents. When an MSCI index is rebalanced, ETFs and mutual funds must also adjust their fund holdings since they are created to mirror the performance of the indices.