Bringing the World Into Focus: A Guide to MSCI Indexes

Economic development around the world has led investors to consider broadening their investment exposures.

But with nearly 30,000 equity securities available globally, the universe is far too large for an investor to filter by themselves.

In this sponsored infographic from MSCI, we explain their index creation process that allows them to map and categorize the stock market.

Defining the Global Universe

Although a majority of global market capitalization is located in the U.S., overseas markets (both developed and emerging) are home to thousands of publicly-listed companies.

Thus, the first step that MSCI takes is identifying eligible securities from public stock markets. Mutual funds, ETFs, and equity derivatives are screened out. This leaves ordinary and preferred shares, share equivalents, and real estate investment trusts (REITs).

Share equivalents are securities that can be converted into company shares. This includes securities such as American depository receipts (ADRs), which are certificates issued by U.S. banks that represent a specified number of a foreign company’s shares. Meanwhile, REITs are companies that own and operate income-producing real estate such as office buildings.

Applying Investability Screens

A stock index is not useful if its underlying securities are not widely accessible.

To create an investable representation of the global market, MSCI screens its universe of eligible securities according to three requirements.

1. Shares must be investable

MSCI analyzes two different size metrics—free-float market cap and full market cap—to make (Read more...)