What Is MSCI? Its Role in Indexes and Investing

Search Fintrev

Search our guides, reviews and glossary.

MSCI is a U.S.-based investment research and index company whose name began as an abbreviation for Morgan Stanley Capital International. It builds and licenses stock market indexes, such as the MSCI Emerging Markets Index and the MSCI All Country World Index (ACWI), and sells risk, performance and governance analytics to institutional investors, asset managers and hedge funds. MSCI does not run a brokerage. Investors gain exposure to its indexes through ETFs and mutual funds that track them, and they can buy shares of the company itself, listed on the New York Stock Exchange under the ticker MSCI.

Where MSCI Came From

The index business predates the MSCI name. In 1965, Capital International introduced stock indexes covering markets outside the United States, among the first global equity indexes of their kind. In 1986, Morgan Stanley bought the licensing rights to Capital International’s data, and the indexes took the Morgan Stanley Capital International name, shortened to MSCI.

The firm expanded from indexes into analytics. In 2004, MSCI acquired Barra, a risk management and portfolio analytics firm, for about $816.4 million. MSCI went public on the NYSE in 2007, initially under the ticker MXB, and Morgan Stanley completed its separation in 2009, leaving MSCI a fully stand-alone company.

What MSCI Does

MSCI earns revenue by selling data and tools rather than by managing client money. Its main lines of business are:

• Indexes: Equity benchmarks organized by region, country, company size (large-, mid- and small-cap), sector and style. MSCI says it calculates more than 246,000 indexes. Fund companies pay to license them as the basis for index funds and ETFs, and institutions use them to measure performance.
• Analytics: Portfolio risk and performance tools, including the Barra models and RiskMetrics, used to estimate exposures, stress-test portfolios and attribute returns.
• Governance and research data: Information used by institutional investors to evaluate companies and portfolios.

MSCI also co-developed the Global Industry Classification Standard (GICS) with S&P in 1999. That system sorts companies into sectors and industries and is widely used to build sector funds and screens.

Major MSCI Indexes

MSCI Emerging Markets Index

Launched in 1988, this index covers large- and mid-cap stocks in 24 emerging economies, including China, India, Korea, Brazil, Mexico, South Africa, Thailand and Egypt. It is a standard benchmark for measuring how developing stock markets perform.

MSCI Frontier Markets Index

Frontier markets are smaller and generally less developed than emerging markets. This index covers 28 markets across the Middle East, Africa, South America and Europe, including Vietnam, Morocco, Iceland, Romania and Bahrain. Their stocks trade less heavily, so positions can be harder to sell quickly when local or global conditions worsen.

MSCI All Country World Index (ACWI)

ACWI is MSCI’s flagship global equity benchmark. It tracks large- and mid-cap stocks from 23 developed and 24 emerging markets, more than 2,500 companies in all, and aims to cover about 85% of the market capitalization in each market it includes. When a fund or report refers to “global stocks,” ACWI is a common yardstick.

MSCI World Index

MSCI World is often confused with ACWI. It covers developed markets only, including the United States, so it holds fewer stocks than ACWI and excludes emerging markets entirely.

MSCI EAFE Index

EAFE stands for Europe, Australasia and the Far East. It holds roughly 694 stocks from 21 developed countries and excludes the United States and Canada. Like ACWI, it targets about 85% of each included market’s capitalization. EAFE markets are generally deep and liquid, which is why the index is widely used as the benchmark for “international developed” funds held by U.S. investors.

How MSCI Indexes Are Weighted

MSCI indexes are market-capitalization weighted. A company’s market capitalization is:

Market cap = share price × shares outstanding

In practice MSCI adjusts for free float, counting only the shares available to public investors and excluding large blocks held by governments, founders or strategic owners. A stock’s weight is its (float-adjusted) market cap divided by the total for all constituents.

Worked example (hypothetical)

Take a made-up three-stock index:

If Company A rises 10% while B and C are flat, the index rises about 6% (10% × 60%). If Company C rises 10% instead, the index rises only about 1%. The same percentage move in a larger company shifts the index far more, which is why a handful of mega-cap stocks can drive the returns of broad MSCI benchmarks. The example ignores dividends, currency effects and any weight changes during the period.

Reviews and Rebalancing

MSCI reviews its index family quarterly and carries out larger rebalances twice a year. During a review, MSCI analysts apply the index’s published rules to add stocks that now qualify, remove those that no longer do, and update share counts and free-float figures so the index still represents its target market.

These changes ripple into the market. An ETF or index mutual fund that replicates an MSCI index has to buy newly added stocks and sell deleted ones around the effective date to keep tracking the benchmark. A larger shift, such as reclassifying a country from frontier to emerging status, can lead benchmarked funds to reposition across many stocks at once, which is why investors follow MSCI review announcements closely.

Why MSCI Matters to Investors

Even an investor who never uses an MSCI product is probably affected by one. Many international and global funds name an MSCI index as their benchmark, and MSCI reported $16.9 trillion in assets benchmarked to its indexes as of December 31, 2024. Comparing a fund’s return with its MSCI benchmark shows whether active management added value after fees, and comparing an index fund’s return with the same benchmark reveals its tracking difference.

MSCI’s country classifications also shape portfolios. Whether a market is labeled developed, emerging or frontier determines which funds can hold its stocks, which can affect the demand those stocks see.

Limitations

• Concentration: Cap weighting gives the biggest companies and countries the largest weights. A “global” index can be dominated by one country or sector.
• Coverage targets: Indexes such as ACWI and EAFE aim for about 85% of each market’s capitalization, so many smaller companies are left out unless you use a small-cap or investable-market version.
• An index is not an investment: You cannot buy an MSCI index directly. Funds that track it charge fees and may hold samples rather than every constituent, so their returns differ from the index.
• Currency: Index returns are often quoted in U.S. dollars. A foreign market can rise in local terms while its dollar return falls if the currency weakens.
• Judgment in classification: Market status and eligibility rules are set by MSCI’s methodology, and reasonable investors may disagree with a given classification.

MSCI vs. Terms It Is Confused With

• MSCI vs. Morgan Stanley: Morgan Stanley gave MSCI its name and was its parent until 2009. Today they are separate public companies.
• MSCI the company vs. MSCI stock vs. an MSCI index: The company sells data and analytics, its shares trade on the NYSE like any other stock, and its indexes are benchmarks that funds track. Context decides which one “MSCI” means.
• MSCI ACWI vs. the S&P 500: Both are cap weighted, but the S&P 500 holds about 500 large U.S. companies while ACWI spans developed and emerging markets worldwide, so the two can diverge widely when U.S. stocks outperform or lag the rest of the world.
• MSCI vs. other index providers: S&P Dow Jones Indices, which maintains the S&P 500 and the Dow Jones Industrial Average, and FTSE Russell compete with MSCI. Their global indexes can classify the same country differently, so two “emerging markets” funds may hold different stock lists.

The Bottom Line

Anyone who owns an international or global fund is likely measured against an MSCI index, since $16.9 trillion in assets was benchmarked to them at the end of 2024. Comparing a fund with its MSCI benchmark shows whether active management added value after fees. Investors should still check for concentration, currency effects and classification choices before treating a global index as broadly diversified.