MSCI Rides the Wave of Global ETF Investing

Last year, international stock markets were all the rage, sparking billions of dollars of inflows into exchange traded funds (ETFs). One big index provider managed to nab about 70% of that money, leading to an even bigger jump in its share price.

Inflows into U.S.-listed ETFs focused on international equities totaled $29 billion in 2009, says Morningstar, and 70% of that money went into ETFs linked to indexes provided by MSCI,  a former unit of Morgan Stanley that went public in 2007. John Jannarone for The Wall Street Journal reports that has helped MSCI’s stock rise 71% since the start of 2009.

The ETF business makes up about 19% of MSCI’s revenue, but it’s also the provider’s key driver of growth. Down the line, it looks like MSCI will continue to be a strong name: about 59% of MSCI-backed funds are through BlackRock, the world’s largest ETF provider.

Whether MSCI’s stock is at the top is a question that remains to be answered, but a larger threat is if international investors leave those markets en masse. New ETFs backed by those indexes wouldn’t be large enough to offset a decline like that. [Other major indexes to play with ETFs.]

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Among the ETFs that track MSCI indexes include:

• iShares MSCI Emerging Markets (NYSEArca: EEM)
  
• Vanguard Emerging Markets (NYSEArca: VWO)
• ProShares Ultra MSCI EAFE (NYSEArca: EFO)
• iShares MSCI Japan (NYSEArca: EWJ)
• iShares MSCI Brazil (NYSEArca: EWZ)

For full disclosure, Tom Lydon’s clients own shares of EEM and VWO.