KraneShares recently had an article about MSCI’s Global Investable Market Indexes Methodology (GIMI) and why they believe investors should understand the way it dictates, or influences, how and which stocks are held by index funds, ETFs and even actively-managed mutual funds. MSCI takes a modular approach to defining the world which at the top level can be divided into two sections:
- The MSCI All Country World (ACWI) Index, and
- The MSCI Frontier Markets Index
The promotion from frontier market to emerging market status brings exposure to a much larger asset base as the MSCI Frontier Markets Index has relatively few assets benchmarked to it while the MSCI Emerging Markets Index has $1.6 trillion in benchmarked assets. Emerging market passive managers have no choice, but to buy the stocks once added to the index while active-managers generally must at least consider the stocks for purchase.
KraneShares goes on to note that once MSCI’s rules are defined, they must be monitored frequently and adjusted to adapt to global market conditions. The following chart summarizes MSCI’s modular approach to building and maintaining their indexes:
To read the whole article, Could this be the most influential publication in asset management?, go to the website of Kraneshares.
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