What Is MSCI?
MSCI is an acronym for Morgan Stanley Capital International. It is an investment research firm that provides stock indexes, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds. MSCI is perhaps best known for its benchmark indexes—including the MSCI Emerging Market Index and MSCI Frontier Markets Index—which are managed by MSCI Barra. The company continues to launch new indexes each year.
- MSCI provides investment data and analytics services to investors.
- MSCI was formed when Morgan Stanley bought the licensing rights to Captial International data in 1986.
- The firm is perhaps best known for its series of stock indexes, which are used by many mutual funds and ETFs as benchmarks.
Capital International introduced a number of stock indexes in 1969 to mirror the international markets—the first global stock market indexes for markets outside the United States. When Morgan Stanley bought the licensing rights to Capital's data in 1986, it began using the acronym MSCI, with Morgan Stanley becoming its 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 a new firm, MSCI Barra, which was spun off in an initial public offering (IPO) in 2007, and began trading on the New York Stock Exchange (NYSE) under the stock ticker MSCI. The firm became a fully independent, stand-alone public company in 2009.
The firm 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 indexes that are widely available to the investing public.
MSCI is perhaps best known for its stock indexes—more than 160,000, which focus on different geographic areas and stock types such as small-caps, mid-caps, and large-caps. They track the performance of the stocks that are included in them and act as a base for exchange-traded funds (ETFs). As of June 30, 2019, there were $12.3 trillion in assets under management (AUM) benchmarked to the firm's indexes. MSCI's top indexes are:
- MSCI Emerging Market Index: Launched in 1988, this index lists constituents from 24 emerging economies including China, India, Thailand, Brazil, South Africa, Russia, and Mexico.
- MSCI Frontier Markets Index: Used as a benchmark to measure the performance of the financial markets in select countries from Asia, this index focuses on 28 markets from the Middle East, Africa, South America, and Europe. Some of the frontier regions with stocks included in this index are Kuwait, Vietnam, Morocco, Lebanon, Kenya, and Bahrain.
- MSCI All Country World Index (ACWI): This is the firm's flagship global equity index, which tracks the performance of small- to large-cap stocks from 23 developed and 26 emerging markets, with more than 3.000 stocks represented.
- MSCI EAFE Index: The EAFE Index lists 918 stocks from 21 developed market countries excluding Canada and the United States.
The MSCI indexes are market cap-weighted indexes, which means stocks are weighted according to their market capitalization—calculated as stock price multiplied by the total number of shares outstanding. 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.
MSCI indexes are reviewed quarterly and rebalanced twice a year.
Each index in the MSCI family is reviewed quarterly and rebalanced twice a year. Stocks are added or removed from an index by analysts within MSCI to 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 indexes.