Let’s go back to the infographic I created earlier this week about the country breakdown of the MSCI Indices. My initial response to seeing a color-coordinated wall of text would be ‘Why should I care?.’
If you ever plan to invest in securities, then you’ll need a roadmap of sorts. The MSCI helps to provide a guide to investing in countries you’ve never given more thought to other than that it was on a map you saw back in fourth grade.
Our good friends the NASDAQ, DOW and the S&P are benchmarks for tracking American securities, however the MSCI goes beyond that. The MSCI All Country World Index (MSCI ACWI) provides a large universe of securities you can choose from to get the diversity you need in your portfolio. Keep in mind that the ACWI includes developed and emerging countries, NOT frontier markets. A country falls into one of the three categories (developed, frontier or emerging) based on its market cap and liquidity. Generally, countries with a large market cap and high liquidity belong in the developed countries category while the smaller market cap and lower liquidity countries fall in the frontier markets.
Soon I’ll be sending out information on another part of benchmark construction and that is sector and industry breakdown.
