What is the MSCI Indices?
The MSCI Indices is one of the best-known global stock market benchmark indices. It represents the economies and financial markets of the developed world.
It is comprised of more than 1,500 listed mid- and large-cap companies from 23 developed countries worldwide.
Some Important Points
- Represents more than 1,500 mid- and large-cap companies from 23 developed countries,
- It was created in 1970 to provide a measure of global economic and financial market performance but only includes developed countries.
- This index is weighted by market capitalization and adjusted by the free float of companies, reflecting the impact of large companies on the real economy.
MSCI Indices: Simple explanation
It was created in February 1970, with the aim of providing information about the direction of the economy and financial markets at a global level. However, it only includes developed countries, excluding emerging and pre-emerging countries.
For this reason, in 1990 the MSCI ACWI was launched, which does include emerging countries and is therefore the most representative of the global economy. MSCI Indices represent around 85% of the stock market capitalisation of each country.
The MSCI Indices is a market capitalization-weighted index adjusted for the free float of companies. Therefore, a percentage movement in the price of large companies leads to a greater movement in the index price, as opposed to medium and small companies. This is a way of reflecting that large companies have a greater impact on the real economy than others.
These indices arise from the need to compare the evolution of actively managed investment funds with respect to some indicator, against which to measure the manager’s performance. They serve as a benchmark.
In addition to the MSCI Indices, there are more than 160,000 other MSCI indices, focusing on different geographic areas, sectors, investment styles, and company sizes.
The MSCI Indices Index is one of the most diversified indices in the world. You can invest in it directly through an index mutual fund or an ETF that replicates its performance and that you can buy through a broker. To do so, you do not need to have a large fortune or have a very high level of financial knowledge. But you do need to have basic knowledge.
They are relatively simple investments. When investing in indices, it is not necessary to keep an eye on market developments, because their great diversification makes them very stable in the long term. If you want to know more about how to invest in indices such as the MSCI Indices, we recommend that you see our course on investing in funds and ETFs.
What is the meaning of MSCI Indices?
The acronym MSCI stands for Morgan Stanley Capital International, the company that originally compiled this and other indices.
This company was born from Capital International, founded in Los Angeles and whose roots date back to the time of the Great Depression and the sandstorms of the 1930s. They developed the first index in 1965 in their offices in Geneva.
In 1986, Morgan Stanley bought the rights to Capital International and created MSCI Inc., becoming its main shareholder. At that time, the indices were renamed MSCI (Morgan Stanley Capital International).
Finally, in 2007, Morgan Stanley was spun off from MSCI, Inc. and became an independent company in 2009.
Since then, MSCI, Inc. has been engaged in investment research and the development and publication of indices used to reflect the economics of certain financial markets and regions, among many other activities.
Composition of the MSCI Indices Index
Composed of 100% equity, this index is made up of more than 1,500 companies from 23 developed countries in 3 world zones (America, Europe & Middle East, and Pacific) and covers approximately 85% of the free float of each of these countries:
- Countries: Germany, Australia, Austria, Belgium, Canada, Denmark, Spain, United States, Finland, France, Netherlands, Hong Kong, Ireland, Israel, Italy, Japan, Norway, New Zealand, Portugal, United Kingdom, Singapore, Sweden and Switzerland.
Top 5 exhibitions according to:
- Sectors: technology, financial, consumer discretionary, healthcare, and industrial.
- Countries: United States, Japan, United Kingdom, France and Canada. Its largest positions are in the companies with the largest capitalization in the world, thus giving rise to an attractive, liquid, and replicable index for investment.
- Companies: Technology companies listed on the Nasdaq stand out, such as Apple, Microsoft, Amazon, Facebook, and Google. More than half of the shares come from companies based in the US.
The index is reviewed quarterly to periodically reflect changes and monitor underlying markets. The cut-off point for medium- and large-sized companies is also recalculated.
MSCI Indices Index Quote
It is quoted in points, obtained by weighting the price by the flee float and dividing by the total number of shares. The largest annual falls occurred with the fall of Lehman Brothers in 2008, with -40.4%, followed by the oil crisis in 1974, with -27.8%, and the Covid-19 crisis with -20.9%.
It has a market capitalisation of over 46,000 billion euros and its largest exposure is the United States.
There are 3 ways to measure your evolution:
- MSCI Indices Price: Only takes into account the evolution of the share price, but not dividends (most stock market indices work this way).
- MSCI Indices Gross: Takes into account price developments as well as the reinvestment of dividends in the index.
- MSCI Indices Net: Takes into account the reinvestment of dividends in the index after taxes, depending on the company’s country of origin.
How to invest in the MSCI Indices Index?
We can invest in it through index funds and ETFs.
They are different vehicles with different implications regarding buying and selling operations, commissions, and taxes, among other aspects.
But its mission is the same: to replicate an index, buying all the companies that comprise it in the same proportion, under a passive management investment style, with very low commissions and very well diversified.
The following list contains some of the most important index fund and ETF managers globally, according to the volume of assets under management:
- Vanguard.
- BlackRock.
- Amundi.
- iShares.
- Fidelity.
- Lyxor.