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. The company continues to launch new indexes each year.
Key Takeaways
- MSCI provides investment data and analytics services to investors.
- MSCI was formed when Morgan Stanley bought the licensing rights to Capital 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.
Understanding MSCI
Capital International introduced a number of stock indexes in 1965 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.
In 2004, MSCI acquired Barra, a risk management and portfolio analytics firm, for approximately $816.4 million. After the merger, there was a spin off in an initial public offering (IPO) in 2007, and MSCI began trading on the New York Stock Exchange (NYSE) under the stock ticker MXB. The firm became a fully independent, stand-alone public company from Morgan Stanley in 2009.
The firm provides its clients with investment tools including those from Barra and RiskMetrics. It also publishes indexes that are widely available to the investing public.
MSCI Indexes
MSCI is perhaps best known for its stock indexes, 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 Dec. 31, 2023, there were $15.6 trillion in assets under management (AUM) benchmarked to the firm's indexes.
MSCI offers more than 280,000 indexes. Some of the most widely used are the Emerging Markets Index, Frontier Markets Index, All Country World Index, and EAFE Index.
MSCI Emerging Market Index
Launched in 1988, this index lists constituents from 24 emerging economies including China, Egypt, India, Korea, Thailand, Brazil, South Africa, and Mexico. Itcompiles the market capitalization of all the companies that are listed on these countries' stock exchanges.
The Emerging Markets Index is considered a good way to track the performance and growth of emerging markets. Emerging markets offer investors growth potential as their economies expand, as well as creating risk diversification for global investors.
MSCI Frontier Markets Index
The Frontier Market Index is used to track markets in countries that are considered more volatile and unpredictable than emerging markets. 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 Vietnam, Morocco, Iceland, Romania, and Bahrain.
Frontier markets can be profitable for investors since they have plenty of room for growth. However, they are not heavily traded, which can make them difficult to sell if a country's economy takes a downturn due to global or local changes.
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 24 emerging markets. The more than 2,800 stocks represented are for companies that have a global presence. It covers about 85% of the market capitalization in each market that it includes.
The ACWI is often used as a way to represent the global stock market.
MSCI EAFE Index
EAFE is an abbreviation for Europe, Australasia, and the Far East. This lists 766 stocks from 21 developed market countries excluding Canada and the United States. It covers approximately 85% of the market capitalization in each of the countries it includes.
EAFE countries are considered highly stable. They are widely traded, making it easy to both buy and sell, even in times of economic trouble.
Index Reviews and Weightings
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.
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.
What Is the Purpose of MSCI?
MSCI provides tools to support and inform the investment industry. The firm provides research, data, and tools to help clients analyze and invest in different global markets. MSCI is also known for its stock indexes, which are used as benchmarks for funds tracking different global markets.
What Is the Difference Between the S&P 500 and MSCI?
The S&P 500 Index is a market value-weighted index of 500 stocks that generally represent the broader U.S. stock market. The MSCI All Country World Index is a market capitalization-weighted index that measures market performance in both developed and emerging markets.
How Many Stocks Are In the MSCI World?
The MSCI All Country World Index includes over 2,800 stocks from 47 markets. It includes both developed and emerging markets around the world.
The Bottom Line
Morgan Stanley Capital International, or MSCI, is a firm that provides investment data and analytics services to investors. It was formed in 1986 when Morgan Stanley bought the licensing rights to data from Capital International.
MSCI is known for its stock indexes, which are used by mutual funds, ETFs, and individual investors as market benchmarks. There are multiple MSCI indexes tracking different sectors of the global economy, including emerging, frontier, developed, and global markets.
