Another common, unintentional “gap” occurs with the MSCI indexes. MSCI is one of the most well-known international index providers out there, and as such we see a lot of investors choose products benchmarked to its indexes, like MSCI EAFE and MSCI Emerging Markets (EM), in order to gain international equity exposure.
What some investors don’t realize is that MSCI’s standard indexes (including MSCI EAFE and MSCI EM) do not include small cap stocks. So, for example, if you own an MSCI Emerging Market fund and you also want emerging market small cap exposure, you would need to buy a separate EM small cap fund.
If you want small cap exposure and don’t want to buy a separate fund, you could instead invest in a fund that’s benchmarked to an MSCI Investable Market Index (IMI). The IMI indexes provide comprehensive market coverage (including small cap stocks), while maintaining risk and country exposures that are extremely similar to their standard indexes (see below).
MSCI IMI vs. Standard Indexes