In putting our analytic ETF Think Tank hats on we point to two important additional tidbit of insight that might determine the winner. MSCI has a greater number of indices to invest in. MSCI has over 100 more Indexes associated with U.S. ETFs than its English rival (259 vs 157). As a business entity, this means there are more buckets for growth and less product concentration. Specifically, meaning that MSCI has greater diversity with only 60% the AUMs represented by the Top 10 ETFs versus 68% for the London Stock Exchange’s FTSE Russell indices.
Given that AUM flows these past few years have been mostly concentrated in broad indexes this may or may not be an advantage today, but we would argue in the Tank that innovation is what investors will be seeking in the future as markets become more challenging. In the Tank we also frequently highlight the risk associated with the concentration of ownership in the REIT market so MSCI is vulnerable to a narrow segment of the market. The ETF market owns a range of 42% to 24% across 10 different REIT stocks and this is somewhat of a function of the size of the Vanguard Real Estate ETF (VNQ).
On August 2nd we will be watching as these two companies report result, but with an established track record MSCI’s CEO Henry Fernandez is the one we are placing a larger bet on. Nothing goes up straight line, but as MSCI remains an overweighted position in the index we must admit we have a vested interest. Stay tuned!
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