MSCI Ready To Change Index World

November 26, 2013

An MSCI-Barclays combo would create a mega-brand in indexing.

Last week Reuters reported that MSCI is on the acquisition prowl, possibly looking to acquire Barclay’s index business.

For index nerds like us here at IndexUniverse, this was the equivalent of leaked footage from the next string of Star Wars movies.

The deal could create the first truly integrated indexing firm that combines equity and fixed-income offerings, bringing a semblance of order back to the indexing world.

Excuse me if you think I’m overstating the significance of this story, but the indexing business has been in some kind of upheaval over the past few years.

On the one hand, firms like Market Vectors are taking their indexing in-house, effectively showing index providers large and small the door. Then you have Vanguard—the third-largest ETF provider in the world—telling the world that costs matter more than index providers.

Then again, there’s iShares’ parent BlackRock making strategic naming decisions—sometimes highlighting an index name on its website, and sometimes removing it altogether—depending on the index family.

The takeaway from all this is that the value of a brand-name index is a matter of much debate.

With this in mind, the timing of MSCI’s potential acquisition is curious.

If we are in fact shifting to a world of self-indexed ETFs or one in which index brands hold little value, why would MSCI even bother shelling out a truckload of money to acquire the Barclays Capital’s index business?

The answer could be fairly simple: keeping pace.

The S&P-Dow Jones merger built what is now the largest index provider in the U.S. ETF market, with more than $566 billion in nonleveraged and inverse assets linked to S&P-Dow Jones indexes. As a quick aside, I singled out “beta 1” assets here—nonleveraged and inverse—because these assets tend to be stickier and speak more to the adoption of index-linked products by investors, as opposed to traders.

While it may be that index brand value has been diluted, the fact still remains that MSCI offers a fairly incomplete worldview as currently constructed.



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