What Is MSCI?

What Is MSCI?

Let me tell you directly: MSCI stands for Morgan Stanley Capital International, and it's an investment research firm that delivers stock indexes, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds. You're probably familiar with it through its benchmark indexes, like the MSCI Emerging Market Index and MSCI Frontier Markets Index. The company keeps expanding by launching new indexes every year.

Key Takeaways

Here's what you need to know upfront: MSCI supplies investment data and analytics services to investors. It started when Morgan Stanley purchased the licensing rights to Capital International data in 1986. The firm is most recognized for its stock indexes, which many mutual funds and ETFs use as benchmarks.

Understanding MSCI

Capital International first introduced stock indexes in 1965 to reflect international markets—these were the initial global indexes for areas outside the United States. When Morgan Stanley acquired the licensing rights to that data in 1986, they adopted the MSCI acronym.

In 2004, MSCI bought Barra, a firm specializing in risk management and portfolio analytics, for about $816.4 million. Following the merger, there was a spin-off through an initial public offering in 2007, and MSCI started trading on the NYSE under the ticker MXB. By 2009, it was a fully independent public company, separate from Morgan Stanley.

Today, MSCI offers clients investment tools from Barra and RiskMetrics, and it publishes indexes that are accessible to the broader investing public.

Important Note on Index Rebalancing

Keep this in mind: When an MSCI index gets rebalanced, ETFs and mutual funds have to adjust their holdings accordingly, since they're designed to mirror the index's performance.

MSCI Indexes

MSCI is primarily known for its stock indexes, which cover various geographic areas and stock sizes like small-caps, mid-caps, and large-caps. These indexes track stock performance and form the basis for ETFs. As of December 31, 2024, $16.9 trillion in assets under management are benchmarked to these indexes.

MSCI maintains over 246,000 indexes. Among the most 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 includes constituents from 24 emerging economies such as China, Egypt, India, Korea, Thailand, Brazil, South Africa, and Mexico. It aggregates the market capitalization of companies listed on these countries' stock exchanges.

You can use the Emerging Markets Index to monitor the performance and growth of emerging markets. These markets provide growth potential as economies expand, and they help diversify risk for global investors.

MSCI Frontier Markets Index

The Frontier Markets Index tracks markets in countries more volatile than emerging ones, covering 28 markets in the Middle East, Africa, South America, and Europe. Examples include Vietnam, Morocco, Iceland, Romania, and Bahrain.

Frontier markets offer profit potential due to their growth room, but they're not heavily traded, making them hard to sell if economic downturns hit from global or local factors.

MSCI All Country World Index (ACWI)

This is MSCI's flagship global equity index, tracking small- to large-cap stocks from 23 developed and 24 emerging markets. It represents over 2,500 stocks from companies with global presence and covers about 85% of market capitalization in each included market.

Investors often turn to the ACWI as a representation of the global stock market.

MSCI EAFE Index

EAFE stands for Europe, Australasia, and the Far East. This index lists 694 stocks from 21 developed market countries, excluding Canada and the United States, covering about 85% of market capitalization in those countries.

EAFE countries are highly stable and widely traded, so buying and selling is straightforward, even during economic issues.

Index Reviews and Weightings

MSCI indexes are market cap-weighted, meaning stocks are weighted by their market capitalization—stock price times total shares outstanding.

The largest market cap stock gets the highest weighting, reflecting how large-cap companies impact economies more than smaller ones. A price change in large-caps moves the index more than in small-caps.

Each index is reviewed quarterly and rebalanced twice a year. MSCI analysts add or remove stocks to keep the index an effective benchmark for its market.

What Is the Purpose of MSCI?

MSCI's purpose is to provide tools that support and inform the investment industry. It offers research, data, and tools for analyzing and investing in global markets, and its indexes serve as benchmarks for funds tracking those markets.

What Is the Difference Between the S&P 500 and MSCI?

The S&P 500 is a market value-weighted index of 500 stocks representing the broader U.S. market. In contrast, the MSCI All Country World Index is a market cap-weighted index measuring performance in developed and emerging markets worldwide.

How Many Stocks Are In the MSCI World?

The MSCI All Country World Index includes over 2,500 stocks from 47 markets, encompassing both developed and emerging markets globally.

The Bottom Line

To wrap this up: MSCI delivers investment data and analytics to investors. Formed in 1986 from Morgan Stanley's acquisition of Capital International data rights, it's renowned for stock indexes used by mutual funds, ETFs, and individual investors as benchmarks. Its various indexes track sectors of the global economy, including emerging, frontier, developed, and worldwide markets.