ESTIMATED IMPACT OF THE
UPCOMING REVISIONS TO THE GICS®
STRUCTURE ON THE MSCI INDEXES

February 2016

© 2016 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

SUMMARY• As announced previously, there will be several changes to the GICS structure as of the close of August 31,
2016, including the creation of a new Real Estate Sector, elevating its position from under the Financials
Sector and bringing the number of sectors to eleven from ten.
• There will be no changes to most MSCI index methodologies – including the MSCI Global Investable
Market Indexes methodology. MSCI proposes changes only to the following index methodologies inorder to account for the creation of the new Real Estate sector:─Enhanced Value─

Prime Value─

Diversified Multiple-Factor• There will be no special treatment related to the transition to the revised GICS structure for most MSCI
Indexes. MSCI proposes a special transition treatment at the November 2016 Index Review for someindexes based on the following methodologies, to account for the active weight sector constraints:
─

Diversified Multiple-Factor Indexes Methodology

─Minimum Volatility Indexes• Securities classified in the newly created Copper sub-industry will be eligible for inclusion in the MSCI
Commodity Producers Indexes.
• This document includes details of the proposals and estimated impact on MSCI Indexes. These proposals
may or may not result in any changes to any MSCI Indexes. MSCI invites feedback from market
participants on or before March 8, 2016.
2

PROPOSED CHANGES TO MSCI INDEXMETHODOLOGIES© 2016 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

MSCI ENHANCED VALUE INDEXES
Current

Proposed•In the calculation of the Enhanced Value z-score,
P/E Fwd, P/B and EV/CFO are used for all sectors
except Financials which only uses P/E Fwd andP/B•In the calculation of the Enhanced Value z-score,
P/E Fwd, P/B and EV/CFO will be used for all
existing sectors, except Financials which will only
use P/E Fwd and P/B, and Real Estate which will
only use EV/CFO•

EV/CFO is currently not used for securities which
will be re-classified to the Real Estate sector atAugust 31, 2016•

Only EV/CFO will be used for securities which will
be re-classified to the Real Estate sector at August
31, 2016 to calculate the Enhanced Value z-score•

Sector Relative z-scores calculated for 10 sectors•

Sector Relative z-scores calculated for 11 sectors•

Sector neutrality applied on 10 sectors•

Sector neutrality applied on 11 sectors

4

SIMULATED IMPACT OF CHANGE• MSCI Enhanced Value Indexes
Parent Index

Index NameWORLD ENHANCED VALUEEUROPE ENHANCED VALUEWORLD ex USA ENHANCED VALUE
USA ENHANCED VALUEJAPAN ENHANCED VALUEKOKUSAI(WORLD ex JP) ENHANCED VALUEWORLD ex CH ENHANCED VALUEEAFE IMI ENHANCED VALUEACWI ENHANCED VALUEEMERGING MARKETS ENHANCED VALUE
AC ASIA PAC ex JAPAN ENH VALUE
AC ASIA PACIFIC ENHANCED VALUEACWI ex USA ENHANCED VALUEEAFE ENHANCED VALUE
AC ASIA ex JAPAN ENHANCED VALUE
UNITED KINGDOM ENHANCED VALUEACWI ex JAPAN ENHANCED VALUE

Current Enhanced Value
Index

Pro-forma Enhanced
Value (old GICS
Structure)

Pro-forma Enhanced
Value (new GICS
Structure)

Real Estate
WeightFinancials
WeightReal Estate
WeightFinancials
WeightReal Estate
WeightFinancials
WeightReal Estate
WeightFinancials
WeightMinimum Turnover
resulting from Sector
Neutrality

3.2%
1.4%
3.6%
2.9%
4.5%
3.1%
3.3%
4.6%
3.2%
3.2%
7.1%
6.0%
3.5%
3.6%
6.7%
1.8%
3.1%

17.7%
21.2%
23.2%
13.8%
15.2%
17.9%
17.6%
20.6%
18.4%
24.8%
29.5%
23.4%
23.6%
21.9%
25.6%
21.8%
18.6%

0.9%
0.0%
1.7%
0.0%
0.0%
1.2%
1.1%
2.4%
1.3%
2.4%
9.7%
5.0%
2.5%
1.5%
6.6%
0.0%
1.8%

21.0%
23.6%
25.5%
17.6%
19.1%
21.3%
21.2%
24.0%
21.5%
25.4%
27.4%
24.0%
25.5%
25.3%
26.4%
23.1%
21.7%

0.9%
0.0%
1.7%
0.0%
0.0%
1.0%
0.9%
2.2%
1.2%
2.0%
8.7%
4.7%
2.5%
1.7%
4.7%
0.0%
1.5%

20.0%
22.6%
25.2%
16.7%
19.7%
19.9%
20.0%
23.0%
20.4%
26.0%
27.9%
24.7%
24.6%
23.8%
27.6%
23.6%
20.2%

3.2%
1.4%
3.6%
2.9%
4.5%
3.1%
3.3%
4.6%
3.2%
3.2%
7.1%
6.0%
3.5%
3.6%
6.7%
1.8%
3.1%

17.7%
21.2%
23.2%
13.8%
15.2%
17.9%
17.6%
20.5%
18.4%
24.8%
29.5%
23.4%
23.6%
21.9%
25.6%
21.8%
18.7%

2.3%
1.4%
2.0%
2.9%
4.5%
2.1%
2.4%
2.4%
2.0%
1.2%
1.6%
1.3%
1.1%
1.9%
2.0%
1.8%
1.6%

All figures as of December 1, 2015

5

MSCI PRIME VALUE INDEXES
Current

Proposed••In the calculation of the Prime Value z-score, P/E,
P/B, P/CE and P/S are used for all sectors except
Financials which only uses P/E and P/BParent Index
Index Name
USA PRIME VALUEEMU PRIME VALUE

In the calculation of the Prime Value z-score, P/E,
P/B, P/CE and P/S will be used for all sectors except
Financials which will only use P/E and P/B and Real
Estate which will only use P/CE

Current Prime Value Index

Pro-forma Prime Value (oldGICS Structure)

Real Estate
WeightFinancials
WeightReal Estate
WeightFinancials
WeightReal Estate
WeightFinancials
Weight

2.9%
1.8%

13.8%
21.1%

0.1%
1.9%

12.2%
16.2%

0.1%
2.6%

12.6%
14.9%

All figures as of December 1, 2015

• Simulated analysis indicates that if only P/CE is used for the calculation of z-score for Real
Estate securities, the pro-forma weight of Real Estate securities in the MSCI USA Prime
Value Index and MSCI EMU Prime Value Index would have been zero6

ONE-TIME TRANSITION PROPOSALFOR THE NOVEMBER 2016 INDEXREVIEW© 2016 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

ONE-TIME TRANSITION PROPOSAL• Certain MSCI index methodologies employ active sector weight constraints as part of theindex construction methodology, in addition to a maximum turnover budget at each index
review.
• Prior to August 2016, the sector weight constraint is applied on the existing Financials sector,
and as a result, individually the new Financials and Real Estate sectors may have active
weights beyond the limits.
─ For example, if the active weight of the existing Financial Sector is +3%, but within it, the active weightof the new Financials Sector could be +10% and that of the new Real Estate Sector could be -7%.

• Due to the creation of the new Real Estate sector, there will be some turnover needed at theindex review simply to bring the Financials and Real Estate sector individually within theactive sector limits.

• MSCI proposes to add this turnover amount to the regular budgeted turnover at theNovember 2016 Index Review in order to allow for the full methodology related turnover
impact in addition to the above turnover.
• This impacts some indexes based on the Minimum Volatility Index methodology and theDiversified Multiple-Factor Index methodology at the November 2016 Index Review.
8

SIMULATED IMPACT OF TRANSITION PROPOSAL• MSCI Diversified Multiple Factor Indexes

Parent Index
Index NameACWI DIVERSIFIED MULTIPLE-FACTOREM DIVERSIFIED MULTIPLE-FACTOR
USA DIVERSIFIED MULTIPLE-FACTOR
USA SMALL CAP DIVERSIFIED MULTIPLE-FACTWORLD ex USA DIVERSIFIED MULTIPLE-FACTOR
JAPAN DIVERSIFIED MULTIPLE-FACTOR
AC ASIA PAC ex JAPAN DIV MULTIPLE-FACTOR
AC ASIA PAC DIVERSIFIED MULTIPLE-FACTOR
AC ASIA ex JAPAN DIVERS MULTIPLE-FACTOR
USA DIVERSIFIED MULTIPLE-FACTOR (CAD)
CA IMI SCT DIVERS MULTIPLE-FACTOR (CAD)

Current DMF Index

Active Weights

Real Estate
WeightFinancials
WeightReal Estate
WeightFinancials
WeightReal Estate

Financials

Obligatory
TurnoverRounded tonearest 5%

Proposed TO
Budget^

3.2%
3.2%
2.9%
10.4%
3.6%
4.5%
7.1%
6.0%
6.7%
2.9%
4.3%

18.4%
24.8%
13.8%
16.1%
23.2%
15.2%
29.5%
23.4%
25.6%
13.8%
34.5%

2.8%
8.6%
0.4%
1.0%
4.0%
2.1%
21.7%
11.3%
16.6%
0.4%
5.3%

19.2%
16.6%
22.5%
23.1%
19.9%
21.1%
12.2%
13.5%
12.6%
22.8%
20.9%

-0.4%
5.4%
-2.5%
-9.4%
0.4%
-2.5%
14.6%
5.3%
10.0%
-2.5%
1.0%

0.8%
-8.2%
8.7%
7.0%
-3.4%
5.9%
-17.3%-9.8%-13.0%
9.0%-13.6%

0.0%
3.2%
3.7%
4.4%
0.0%
0.9%
12.3%
4.8%
8.0%
4.0%
8.6%

0.0%
5.0%
5.0%
5.0%
0.0%
0.0%
15.0%
5.0%
10.0%
5.0%
10.0%

20.0%
25.0%
25.0%
25.0%
20.0%
20.0%
35.0%
25.0%
30.0%
25.0%
30.0%

All figures as of December 01, 2015
^Rounded to the nearest 5%. Numbers subject to change after May 2016 Index Review

9SIMULATED IMPACT OF TRANSITION PROPOSAL• MSCI Minimum Volatility Indexes

Parent Index
Index Name

Real Estate
WeightFinancials
WeightWORLD ex AU MINIMUM VOLATILITY (AUD)
5.8%
33.9%
NORTH AMERICA MINIMUM VOLATILITY (CHF)
2.8%
14.7%
JAPAN SMALL CAP MINIMUM VOLATILITY (JPY)
10.4%
9.2%
WORLD EX CH MINIMUM VOLATILITY (CHF)
3.1%
17.7%
WORLD MINIMUM VOLATILITY (NZD)
3.0%
17.7%
EUROPE SMALL CAP MINIMUM VOLATILITY(EUR)
9.1%
14.3%
AUSTRALIA IMI MINIMUM VOLATILITY (AUD)
8.4%
40.2%
AUSTRALIA SMALL CAP MIN VOLATILITY (AUD)
8.2%
10.0%
WORLD EX CH ex BANKS ex DF MIN VOL (CHF)
3.6%
4.7%
EUROPE SMALL CAP MINIMUM VOLATILITY(USD)
9.1%
14.3%
All figures as of December 01, 2015
^Rounded to the nearest 5%. Numbers subject to change after May 2016 Index Review

Current MV Index

Active Weights

Real Estate
WeightFinancials
WeightReal Estate

Financials

Obligatory
TurnoverRounded tonearest 5%

Proposed TO
Budget^

25.8%
14.8%
22.0%
13.5%
12.6%
18.3%
16.8%
16.1%
11.4%
16.8%

12.4%
5.0%
0.4%
8.0%
12.4%
10.0%
27.3%
7.1%
2.0%
11.1%

20.0%
12.1%
11.6%
10.3%
9.6%
9.2%
8.4%
7.9%
7.8%
7.8%

-21.5%
-9.8%
-8.9%
-9.7%
-5.3%
-4.2%
-13.0%
-2.9%
-2.7%
-3.1%

16.5%
7.1%
6.6%
5.3%
4.6%
4.2%
8.0%
2.9%
2.8%
2.8%

15%
5%
5%
5%
5%
5%
5%
5%
5%
5%

25%
15%
25%
15%
15%
25%
15%
25%
15%
25%

10

ESTIMATED IMPACT ON OTHER MSCIINDEXES© 2016 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

MARKET-CAP WEIGHTED INDEXES
GICS Screen

ExampleImpactFinancials

MSCI World Financials

Deletion of securities newly classified
in the Real Estate Sector

Diversified Financials

MSCI World Diversified
Financials

Addition of securities from theMortgage REIT Sub-Industry

Real Estate

MSCI World Real Estate

Deletion of securities from theMortgage REIT Sub-Industry

REITs

MSCI World REITs

Deletion of securities from theMortgage REIT Sub-Industry• The additions / deletions will be applied in one step coinciding with the August 2016
Quarterly Index Review.
• Real Estate or REIT indexes that already exclude Mortgage REITs will not be impacted:
─ MSCI US REIT Index
─ MSCI Core Real Estate Indexes

12

EQUAL SECTOR WEIGHTED INDEXES
Methodology

Current

Proposed

Equal Sector Weighted Indexes

Equal weighting applied to 10
sectors

Equal weighting applied to 11
sectors• Simulated Impact
Parent Index
Index Name
EAFE EQUAL SECTOR WEIGHTED
EMERGING MARKETS EQUAL SECTOR WEIGHTED
All figures as of December 01, 2015

Real Estate
Weight3.7%
3.2%

Financials
Weight21.9%
24.7%

Current Equal Sector
Weighted Index
Real Estate
Weight1.5%
1.1%

Financials
Weight8.5%
8.6%

Pro-forma Equal Sector Weighted (old GICS
Structure)

Pro-forma Equal Sector Weighted (new GICS
Structure)

Real Estate
Weight1.4%
1.1%

Real Estate
Weight9.1%
9.1%

Financials
Weight8.6%
8.9%

Turnover
3.1%
6.3%

Financials
Weight9.1%
9.1%

Turnover
9.3%
12.0%

13

SECTOR NEUTRAL QUALITY INDEXES
Methodology

Current

Proposed

Sector Neutral Quality

Sector neutrality applied to 10
sectors

Sector neutrality applied to 11
sectors• Simulated Impact
Parent Index
Index NameWORLD SECTOR NEUTRAL QUALITYEUROPE SECTOR NEUTRAL QUALITY
WORLD EX USA SECTOR NEUTRAL QUALITY
USA SECTOR NEUTRAL QUALITY
EAFE IMI SECTOR NEUTRAL QUALITYEM SECTOR NEUTRAL QUALITY
All figures as of December 01, 2015

Real Estate
Weight
3.2%
1.4%
3.6%
2.9%
4.6%
3.2%

Financials
Weight
17.7%
21.2%
23.2%
13.8%
20.6%
24.8%

Current Sector Neutral Quality
Index
Real Estate
Financials
WeightWeight
1.8%
18.7%
2.6%
20.7%
4.1%
22.4%
1.4%
15.0%
3.1%
22.6%
3.5%
25.6%

Pro-forma Sector Neutral Quality (old GICS
Structure)
Real Estate
Financials
TurnoverWeightWeight
2.1%
18.7%
7.5%
2.6%
20.0%
12.3%
5.2%
21.7%
10.1%
1.5%
15.2%
12.9%
4.1%
21.1%
11.2%
2.9%
25.1%
13.0%

Pro-forma Sector Neutral Quality (new GICS
Structure)
Real Estate
Financials
TurnoverWeightWeight
3.2%
17.7%
9.3%
1.4%
21.2%
12.3%
3.6%
23.2%
10.3%
2.9%
13.8%
18.0%
4.6%
20.5%
12.1%
3.2%
24.8%
13.0%

14

OTHER MSCI INDEXES IMPACTED
Methodology

Current

Proposed

Dividend Masters Indexes

Sector Capping (30%) applied
on 10 sectors

Sector Capping (30%) applied
on 11 sectors

Global Low Carbon Indexes

Active Sector weight
constraints on 10 sectors

Active Sector weight
constraints on 11 sectors

Minimum Volatility

Active Sector weight
constraints on 10 sectors

Active Sector weight
constraints on 11 sectors

Diversified Multiple-Factor

Active Sector weight
constraints on 10 sectors

Active Sector weight
constraints on 11 sectors

Cyclical and Defensive Sectors

Real Estate securities (part ofFinancials sector) classified as
CyclicalReal Estate Sector classified as
CyclicalHigh Dividend Yield

REITs not eligible

All REITS classified in the new
Real Estate Sector as well as
Mortgage REITS not eligible

Global Sustainability andGlobal Socially Responsible
Indexes

Sector Coverage Targeted for
10 sectors

Sector Coverage Targeted for
11 sectors

15

OTHER GICS STRUCTURE CHANGES• Other changes that will occur on August 2016
─ Creation of two new sub-industries (Copper and Financial Exchanges & Data)─ Combination of two sub-industries (Internet and Direct Marketing Retail)• As a result, the following changes will occur for the Commodity Producers Indexes
Methodology
 Current Methodology: Securities classified under the following Sub-Industries under Metals are
selected•

15104010 (Aluminum)•

15104020 (Diversified Metals & Mining)•

15104030 (Gold)•

15104040 (Precious Metals & Minerals)•

15104045 (Silver)•

15104050 (Steel) New Methodology : The new Copper Sub-Industry (15104025), which is being carved out ofDiversified Metals and Mining(15104020), will be added to the Metals category as an eligible subindustry for security selection.

• No other index methodologies are impacted as a result of these changes
16

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For more information, visit us at www.msci.com.

17

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18