MSCI Inc.: What it is and why it matters
MSCI (Morgan Stanley Capital International) is an investment-research firm that provides indexes, data, analytics, and risk-management tools to institutional investors, asset managers, and funds. It is best known for its family of benchmark stock indexes, which underpin many mutual funds and exchange-traded funds (ETFs) and serve as reference points for portfolio construction and performance measurement.
Brief history
- Capital International created the first global stock indexes for markets outside the U.S. in 1965.
- Morgan Stanley acquired licensing rights to that data in 1986 and began operating under the MSCI name.
- MSCI expanded its analytics capabilities by acquiring Barra in 2004 (a firm specializing in risk and portfolio analytics).
- The company completed an IPO in 2007 and became fully independent from Morgan Stanley by 2009.
Core services
- Indexes covering geographic regions, market caps, and investment styles.
- Risk and performance analytics for portfolio construction and monitoring (including tools from the Barra and RiskMetrics lines).
- Governance and ESG-related data and solutions.
MSCI publishes a very large universe of indexes (more than 246,000) and, as of December 31, 2024, had about $16.9 trillion in assets under management benchmarked to its indexes.
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Key MSCI indexes
- MSCI All Country World Index (ACWI)
- Flagship global equity index covering developed and emerging markets.
- Includes roughly 2,500+ stocks from 47 markets (23 developed and 24 emerging).
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Targets about 85% of market capitalization in each included market and is widely used to represent global equity performance.
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MSCI Emerging Markets Index
- Launched in 1988.
- Tracks companies across major emerging economies (e.g., China, India, Brazil, Korea, South Africa).
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Used to measure growth potential and diversification benefits from emerging markets.
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MSCI Frontier Markets Index
- Covers less-developed, often more volatile markets (about 28 countries from regions such as the Middle East, Africa, South America, and parts of Europe and Asia).
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Frontier markets can offer room for growth but tend to have lower liquidity and higher political/economic risk.
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MSCI EAFE Index
- EAFE = Europe, Australasia, Far East.
- Tracks large- and mid-cap stocks across developed markets excluding the U.S. and Canada (around 21 developed countries).
- Covers about 85% of market capitalization in each included country and is commonly used to represent non‑North American developed-market equities.
Index methodology, reviews, and market impact
- Most MSCI indexes are market-capitalization weighted: each stock’s weight is proportional to its market cap (share price × shares outstanding). Larger companies thus have a greater influence on index returns.
- MSCI reviews indexes quarterly and rebalances them (typically twice a year). During rebalances, constituents may be added or removed to maintain representativeness.
- Because many ETFs and mutual funds track MSCI indexes, index reconstitutions can force fund managers to buy or sell underlying securities, affecting market liquidity and prices for those stocks.
How MSCI differs from other benchmarks
- S&P 500 vs. MSCI ACWI: The S&P 500 is a market-value-weighted index of 500 large U.S. companies and focuses on the U.S. market. MSCI ACWI is broader and market-cap-weighted across both developed and emerging global markets (2,500+ stocks across 47 markets).
Bottom line
MSCI is a central provider of global equity benchmarks and investment analytics. Its indexes are widely used by investors for benchmarking, portfolio construction, and passive investing strategies. Understanding MSCI’s methodologies and rebalancing schedules is important for institutional investors and fund managers because index changes can have meaningful market effects.