In the world of indexing for exchange traded funds, the undisputed leader in terms of brand recognition is MSCI (MSCI). Inflows to ETFs benchmarked to MSCI indices through the first half of the year prove as much.
Investors poured $84 billion into ETFs in the first six months of 2014 with $29 billion, or 34%, going to funds tracking MSCI indexes. While major global funds such as the iShares MSCI Emerging Markets ETF (EEM) and the iShares MSCI EAFE ETF (EFA) remained key drivers of asset growth among ETFs linked to MSCI indices, a batch of newer ETFs are helping drive growth for the index provider.
As Baer Pettit, MSCI managing director and head of the firm’s indexing business, noted in an interview with ETF Trends, the company’s ability to be the index provider of choice for so many new ETFs is the result of an intense focus on what he calls the three pillars: Quality, innovation and client support.
“Many of our new ETF assets really fall into second category – innovation,” said Pettit. “We’ve invested a tremendous amount in strategy and factor indexes in the last few years. It’s really starting to pay off as investors fined these indexes rally fit well into their portfolios to achieve a range of goals.”
Just last month, MSCI and State Street Global Advisors, the second-largest U.S. ETF issuer, partnered on three diversified global ETFs backed by the quality factor. [MSCI, State Street Partner on Quality ETFs]
Those launches were followed by the debut of six-single country ETFs benchmarked to MSCI indices that also focus on quality. New ETFs from that group of six include the SPDR MSCI Spain Quality Mix ETF (QESP) and the S PDR MSCI Australia Quality Mix ETF (QAUS) . [State Street's Quality Approach to New ETFs]
The quality factor “captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics,” according to MSCI.
Earlier this year, Market Vectors launched four ETFs that emphasize the quality factor while tracking MSCI indices, including the Market Vectors MSCI Emerging Markets Quality Dividend ETF (QDEM).
MSCI’s portfolio and risk analytics business provides a starting point for the index innovation process. From there, MSCI speaks to “institutional investors or ETF strategists about these types of strategy indexes. They’ll often then determine their interest and, in parallel, we’re speaking to an ETF manager about creating the ETF. It also works the other way — with large ETF managers we try to innovate with them directly,” said Pettit.
In fact, Pettit added that MSCI is currently working directly with BlackRock (BLK), parent company of iShares, on new product development.
More ETFs with at least $1 billion in assets under management follow MSCI indices than those of any other provider. That number could grow with help from the continued success of the iShares core lineup. [iShares Make Major Additions to Core Lineup]