What is MSCI world index fund?

The MSCI World Index includes companies based on specific criteria related to market size, liquidity, and other factors to ensure that the index represents the overall equity performance of developed markets globally. Here are the main criteria for a company's inclusion in the MSCI World Index:

1. Market Capitalization

• Large- and Mid-Cap Stocks: The MSCI World Index focuses on large-cap and mid-cap companies. These companies are generally more stable and established compared to small-cap stocks.
• Size Thresholds: MSCI sets specific market capitalization thresholds that vary by country to ensure that the companies included are significant players in their respective markets.
  • Large-Cap: Typically the largest companies by market capitalization within a country's equity market.
  • Mid-Cap: Companies that are smaller than large-cap firms but still substantial in size.

2. Liquidity

• Minimum Liquidity Requirements: Companies must meet minimum liquidity thresholds to ensure that their stocks are sufficiently traded. Liquidity is measured by metrics like average daily trading volume, which ensures that the company’s shares are actively traded and easily bought or sold.
• Free Float Adjusted Market Capitalization: MSCI uses free float-adjusted market capitalization (i.e., only including shares that are available to the public and excluding closely-held shares) to assess liquidity and market impact.

3. Country of Inclusion

• Developed Markets: The MSCI World Index only includes companies from developed markets. As of now, this includes 23 countries, such as the United States, Canada, Japan, the United Kingdom, Germany, and Australia. Emerging markets are excluded (they are covered in separate indices, such as the MSCI Emerging Markets Index).
• Global Diversification: The index covers companies across multiple developed economies, ensuring broad geographic diversification.

4. Industry Representation

• Sector Diversification: The index is designed to represent the performance of a wide range of industries. Companies from sectors like technology, healthcare, financials, consumer discretionary, and industrials are included.
• Global Industry Classification Standard (GICS): MSCI uses the GICS framework to classify companies by sector, ensuring that the index covers the broad spectrum of industries within developed markets.

5. Financial Health and Sustainability

• Profitability and Financial Stability: While there are no explicit profitability requirements, the companies included tend to be financially stable and profitable, reflecting the economic strength of developed markets.
• ESG Considerations: MSCI has introduced ESG (Environmental, Social, and Governance) considerations into some of its indices. While the standard MSCI World Index is not specifically an ESG index, many investors and fund managers may apply ESG filters when selecting companies for investment based on this index.

6. Index Reviews and Rebalancing

• Semi-Annual and Quarterly Reviews: MSCI conducts semi-annual index reviews in May and November, as well as quarterly reviews in February and August. During these reviews, companies may be added or removed from the index based on updated data, ensuring the index reflects the current state of global equity markets.
• Rebalancing: MSCI periodically rebalances the index to adjust for changes in market capitalization, liquidity, and industry representation. This ensures that the index remains representative of the global developed markets.

7. Foreign Inclusion Factor (FIF)

• The Foreign Inclusion Factor is used to adjust a company’s market capitalization based on the proportion of shares that are available to foreign investors. This ensures that the index accurately reflects the investable portion of a company's market cap from the perspective of global investors.

8. Corporate Actions

• Mergers, Acquisitions, and Spin-offs: Companies that undergo significant corporate actions (such as mergers or spin-offs) are reviewed and adjusted in the index based on their new market capitalizations and other criteria.

Final Thoughts

The MSCI World Index aims to represent a broad and diverse range of developed market equities by selecting companies that are leaders in their industries, have significant market capitalization, and meet specific liquidity and financial criteria. The inclusion process ensures that the index is both comprehensive and investable, making it a useful benchmark for global equity performance.