As one of the largest providers of indexes for use by exchange traded funds, MSCI (NYSE: MSCI) is already a known entity in the ETF business with brand recognition within the ETF community on par with Apple (NasdaqGS: AAPL) or Coca-Cola (NYSE: KO) in the “real world.”
While MSCI already enjoys an advantageous position in the ETF market, that position is being further enhanced by the growth of factor-driven funds, or those ETFs that focus on investment factors such as momentum, quality and value.
“Overall, 95 ETFs based on MSCI indexes were launched in 2014, almost twice as many as the next index provider, with 42 (45 percent) of these linked to Factor Indexes, compared to six in 2013. 12 new ETFs tracking MSCI Multi-Factor Indexes, which combine more than one factor, were launched in 2014,” said MSCI in a statement.
Already the index provider for some of the world’s largest ETFs, including the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and the iShares MSCI EAFE ETF (NYSEArca: EFA), the rise of factor ETFs is paying dividends for MSCI. Shares of the index provider are up nearly 29% over the past year and on Monday, the stock hit a new all-time high. [MSCI Asserts its Dominance]
Some factor ETFs have found quick success, helping pump more assets to funds benchmarked to MSCI indexes. For example, the iShares MSCI USA Momentum Factor ETF (NYSEArca: MTUM) does not celebrate its second anniversary until April, but the ETF has $626.5 million in assets under management. Likewise, the iShares MSCI USA Value Weighted Index Fund (NYSEArca: VLUE) also turns two in April and that ETF already has nearly $650 million in AUM. [Inside Bespoke ETFs]
“2014 was a year of strong growth in the number of ETFs based on our indexes, in particular our factor indexes,” said Baer Pettit, managing director and global head of MSCI’s index business, in the statement. “These numbers are evidence that our innovative index offering, combined with the strength of our brand, continue to make MSCI indexes the first choice of ETF providers around the world.”
With the success of U.S.-focused factor-driven ETFs, fund issuers are partnering with MSCI to bring international offerings to market. Last year, State Street’s (NYSE: STT) State Street Global Advisors partnered with MSCI on six single-country multi-factor ETFs, including the SPDR MSCI Spain Quality Mix ETF (NYSEArca: QESP) and the SPDR MSCI Australia Quality Mix ETF (NYSEArca: QAUS), as well as the SPDR MSCI EAFE Quality Mix ETF (NYSEArca: QEFA) and SPDR MSCI Emerging Markets Quality Mix ETF (NYSEArca: QEMM). [Qualifying Quality in Emerging Markets]
Earlier this month, iShares, the world’s largest ETF issuer, introduced the iShares MSCI International Developed Momentum Factor ETF (NYSEArca: IMTM) and the iShares MSCI International Developed Quality Factor ETF (NYSEArca: IQLT), both of which track international MSCI indexes that emphasize the quality factor.
The quality factor “captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics,” according to MSCI.
At the end of last year, 13% of all U.S. ETF assets, a number north of $2 trillion, were allocated to funds tracking MSCI indexes, according to ETF data provider and research firm ETFGI. http://etfgi.com/
Tom Lydon’s clients own shares of EEM and EFA.