MSCI has given details of the long-awaited changes to its Standard Index Series. The changes have been made to reflect the level of market capitalisation that is freely available to investors in companies contained in its benchmarks.
These alterations are the result of the first phase of the index provider’s implementation of its ‘Enhanced Methodology’, and take effect on November 30.
MSCI’s Enhanced Methodology adjusts the market capitalisation of index constituents for free float. It also aims to include 85% of free float-adjusted market capitalisation in each industry group, in each country.
The first phase of the implementation, says MSCI, is meant to reflect about half of the changes in the Standard Index Series. The second and final phase of the implementation will take place at the end of May 2002.
As a result of the free-float adjustments, the weight of developed markets in the MSCI ACWI (All Country World Index) Free Index will rise to 96.2% from 95.3%. The MSCI AWCI represents 49 of the world’s developed and emerging markets. Following the changes, the weight of emerging markets will stand at 3.8%, down from 4.7%.
This increase is mostly due to the higher average free float, less restrictive foreign ownership limits and greater availability of sizeable and liquid securities in developed markets, MSCI explained.
Within the AWCI, the MSCI USA and UK Indices would have the largest increases in country weights, with the US index’s weight up to 53.4% from 50.7%, and the UK index up to 10.3% from 9.9%. The greatest decreases in weight would happen in the Japan, France and Germany indices, MSCI says.
But, at the same time, changes were also made to both the Standard and Provisional Index Series as a result of the regular November quarterly index rebalancing.
MSCI created its Provisional Index Series to help investors understand the changes that would happen if the Enhanced Methodology were implemented immediately in the Standard Index Series.
The index provider says it has minimised the changes that came as a result of the regular quarterly rebalancing for both sets of indices. The only addition will be Inditex, it says, which would be added to the MSCI Spain Index and its parallel provisional index. This move will increase the representation of the Retailing Industry Group.
The biggest deletion will be Abbey National, which will be removed from the MSCI United Kingdom Index, and the equivalent provisional index. This move is aimed at reducing the over-representation of the Banks Industry Group caused by the recent merger of the Halifax Group with the Bank of Scotland, MSCI says.