INDEX PROVIDER OF THE YEAR
Index providers are at the heart of the ETF ecosystem. Most of the 2,200-plus U.S.-listed ETFs in the market are passively managed—tied to an index—and the bulk of the $5 trillion in global ETF assets today sits in index-based strategies.
The job of developing, constructing and managing indices is crucial to the growth and success of ETFs. MSCI has been excelling at this for more than 40 years.
The firm first entered the space in the late 1960s with global equity indices, and today it offers more than 150,000 indices with an estimated $12.5 trillion in total equity assets benchmarked to them globally (according to the company, as of late 2017). Some of its best-known indices include the MSCI ACWI and the MSCI EAFE Index.
MSCI is a powerhouse among index providers, and one that has maintained leadership in the space through its keen focus on the needs of investors, on the evolving investment landscape, on the importance of top-notch data and on continued, ongoing research made readily available to investors and market participants.
The firm is 2018’s Index Provider of the Year, but its distinction isn’t a one-off event. MSCI casts a long shadow in the ETF space, counting more than 900 ETFs from myriad providers around the globe tied to one of its benchmarks.
INDEX OF THE YEAR
WINNER: WisdomTree U.S. Multifactor Index
The potential for outperformance is a seductive thing for investors. That’s a large part of what’s driven the immense interest in factor indices in recent years. Unlike popular indices such as the S&P 500 and the Russell 2000, factor indices use criteria other than market cap to weight their constituents.
The winner of the Index of the Year award for 2018 is one of those: the WisdomTree U.S. Multifactor Index. Since it was introduced in June 2017, through the end of February 2019, the index has risen 18.7% versus the 18.4% return for the S&P 500. That’s not huge outperformance, but it’s outperformance nonetheless.
The WisdomTree U.S. Multifactor Index is more concentrated than many other broad U.S. equity ETFs, but that hasn’t yet resulted in any unusual volatility. The index weights its approximately 200 holdings based on two fundamental factors (value and quality), and two technical factors (momentum and low correlation).
The result is an index with current heavy weightings in software (14.1%), insurance (13%), health care equipment (10.2%) and technology hardware (8%).
The WisdomTree U.S. Multifactor Fund (USMF) is a $68 million ETF that tracks the index. It has an 0.28% expense ratio and a distribution yield of 1.3%.