MSCI Capped Indices

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Most MSCI indices are traditional market cap weighted indices - each index constituent is weighted by its free float-adjusted market cap. In certain cases, this weighting scheme can result in single stock, sector or geographical concentrations. This is because as a company, sector or region grows in value, so does its index weight and therefore its influence on the performance of the index.

Standard MSCI Capped Indices provide an alternative to pure market cap weighted indices. They aim to limit index concentration by constraining various sector, geographical or constituent weights to a particular maximum. For example, the MSCI Frontier Markets 15% Country Capped Index ensures that no single Frontier Markets country comprises more than 15% of the index at each quarterly rebalance.

Other examples of MSCI Capped Indices include the MSCI 10/40 and the MSCI 25/50 Index families designed in light of various diversification requirements that apply to many investment funds in the European Union and the US.

The MSCI 10/40 Equity Indices take into consideration UCITS* requirements and are derived from MSCI Standard, Value & Growth and Small Cap Equity Indices.

The MSCI proprietary 10/40 Equity Index Methodology is based on extensive simulations and client consultations. Key features and benefits of the MSCI 10/40 Index Methodology include:

  • Index stability
  • Minimized tracking error versus the Parent Index
  • Minimized turnover

The MSCI 25/50 Indices are designed to take into account US Internal Revenue Code investment constraints needed for a fund to qualify as a regulated investment company (RIC) in the US. The investment constraints pertain to both asset diversification and sources of income. The new MSCI 25/50 Indices are designed to be more appropriate benchmarks for asset managers running US registered sector or country RIC compliant funds, which may contain a small number of securities or a few heavily weighted securities.

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The MSCI 25/50 Index Methodology follows a portfolio optimization framework using the Barra Optimizer. It aims to ensure that the US IRC constraints are respected. This optimization also aims to minimize weight differences between the MSCI 25/50 Index and the Parent Index, while maintaining a relatively low index turnover. The indices are rebalanced quarterly at the end of February, May, August and November.

The MSCI 25/50 Indices may be licensed for use by institutional and retail investors around the world for portfolio management and benchmarking purposes. In addition, the indices may also be licensed to serve as the basis of index-linked investment vehicles such as passive funds and ETFs.

*UCITS: Undertakings for Collective Investment in Transferable Securities.