Want to invest in the habits of thirtysomethings? You’ve now got an index to track.
Index provider MSCI has launched a new set of thematic indexes for investors looking to focus their exposure on major trends, such as millennials or disruptive technology, that it expects to shape society and the economy for decades to come.
Equity indexing is big business with providers such as MSCI, FTSE Russell, Nasdaq, S&P and Dow Jones, jostling for market share in an investment landscape where replicating lists of securities compiled along certain criteria has become increasingly popular and a benchmark for active investors.
Traditionally, index providers have sliced and diced stocks along sectors, size or geographic lines, but thematic indexing has emerged as a theme in recent years.
MSCI launched its first four thematic indexes with little fanfare as a test balloon late last year. However, those themes ranging from robotics to ageing society were “not very original” and addressed mostly already well-established trends, said Stephane Mattatia, head of index products EMEA at MSCI.
Now MSCI is ready to push out the boat a bit - identifying five new ones in a bid to help investors catch an upside from a demographic and technological shift.
Apart from disruptive technology and millennials - referring to those born between 1980 and mid-1990s - the new batch of indexes includes smart cities, digital economy and future mobility.
“We are partnering up with external experts, which are not from the financial sphere, but experts in their own fields,” said Ms. Mattatia, adding MSCI had worked with author and strategic adviser Lukas Neckermann on the mobility and smart cities index.
“It is difficult for us to make sure that the theme is relevant for the economy and secondly it is difficult for us to find the right parameters for the theme.”
MSCI isn’t the only index provider trying to ride the thematic indexing wave: Nasdaq launched a number of artificial intelligence and robotics indexes in recent years. Indexes for clean energy and ESG indexes are proliferating.
For MSCI, choosing index components is a language-based process.
Once a trend has been singled out, MSCI will identify half a dozen defining seed words - for the millennials benchmark, the list contained the likes of “new generation” or “new technology”.
Using those seed words, MSCI derives a list of around 50 keywords, which in this case contains the likes of “shared economy”, “organic food” or “sport”.
The number of word matches in company results’ filings plus other filters provide a score which helps decide index membership, Ms. Mattatia explained.
MSCI’s millennial index contains 601 constituents and among the top ones are Apple Inc., Microsoft Corp., Facebook Inc., Amazon Inc., Netflix Inc. and Paypal Holdings Inc.