Index Methodology

MSCI Equal Weighted Indexes
Methodology
May 2011

msci.comIndex Methodology
MSCI Equal Weighted Indexes Methodology
May 2011

Contents

1 Introduction .......................................................................................... 3
2 Constructing the MSCI Equal Weighted Indexes ................................ 3
3 Maintaining the MSCI Equal Weighted Indexes.................................. 3
3.1 Quarterly and Semi-Annual Index Reviews ....................................................... 3
3.2 Ongoing Event Related Changes ........................................................................ 3
3.2.1

Rebalancing due to an IPO added to the Parent Index as an early Index Inclusion .......................4

3.2.2

Additions and deletions due to corporate events ..........................................................................4

Appendix..................................................................................................... 5
Exhibit 1: MSCI World Equal Weight Index Total Return performance in USD relative to the MSCI World
Index - December 1998 to December 2007 ....................................................................................................5
Exhibit 2: Annualized Risk and Return: December 1998 to December 2007..................................................5
Exhibit 3: Largest Ten Securities by Market Capitalization in the MSCI World Index .....................................6
Exhibit 4: Smallest Ten Securities by Market Capitalization in the MSCI World Index ...................................6
Client Service Information is Available 24 Hours a Day ..................................................................................7
Notice and Disclaimer ........................................................................................................................................... 7
About MSCI ............................................................................................................................................................ 7

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Index Methodology
MSCI Equal Weighted Indexes Methodology
May 2011

1 Introduction
For over 35 years, MSCI has constructed the most widely used international equity indexes for
institutional investors. In calculating its international equity indexes, MSCI employs market
capitalization weighting where each constituent in the index is weighted by its free float-adjusted
market capitalization. Over time, investors have expressed a desire for index providers to additionallyprovide indexes based on alternative weighting schemes. For example, MSCI calculates a GDP weighted
version of its international equity indexes as some investment professionals prefer to weight countries
in a composite index by a variable, like GDP, other than market capitalization.
The MSCI Equal Weighted Indexes offer another alternative to market capitalization-weighted indexes.
In the MSCI Equal Weighted Indexes, each security has the same weight, i.e. the weight of each security
is set to unity on the rebalancing date. Between two rebalancings, the weight of securities will deviate
from the equal weight based on the performance of each security.
This document describes the methodology that MSCI uses to calculate the MSCI Equal Weighted Indexes
by applying equal weights to the constituents of the corresponding free float-adjusted market
capitalization weighted MSCI global equity indexes (herein, “Parent Indexes”).

2 Constructing the MSCI Equal Weighted Indexes
The MSCI Equal Weighted Indexes are constructed from the applicable MSCI country and composites
indexes and have the same constituents as the underlying Parent Indexes. At construction and at eachrebalancing, each issuer in the equal weighted index is given an equal weight (i.e. 1/N, where N is thenumber of issuers in the Parent Index). Between two rebalancings, the weightings of constituents willchange due to price performance. If there are multiple securities of the same issuer in the index, theissuer will be equal weighted and the securities will be free float-adjusted market capitalization
weighted.
At each rebalancing, a constraint factor is calculated for each constituent in the MSCI Equal Weighted
Index. The constraint factor is defined as the weight in the MSCI Equal Weighted Index at the time of therebalancing divided by the weight in the Parent Index. The constraint factor remains constant between
index reviews except in case of corporate events as described below

3 Maintaining the MSCI Equal Weighted Indexes
3.1

Quarterly and Semi-Annual Index Reviews
Coinciding with the quarterly and semi-annual index reviews of the Parent Indexes, the MSCI Equal
Weighted Indexes are rebalanced on the last business day of February, May, August and November.

3.2

Ongoing Event Related Changes
In general, the MSCI Equal Weighted Indexes follow the event maintenance of the Parent Index.
Changes in the Parent Index are reflected simultaneously in the MSCI Equal Weighted Indexes.

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3.2.1

Rebalancing due to an IPO added to the Parent Index as an early Index Inclusion
Early inclusions of new securities to the Parent Index, such as IPOs, will be simultaneously added to thecurrent equal weighted index with a constraining factor reflecting a weight that its issuer would have
had as a result of an equal weighted index rebalancing. The weights of existing constituents are thenaccordingly adjusted so as to bring the total weight of the index to 100%. For example, if there are nineconstituents in the index prior to the IPO inclusion, the IPO will be included with an estimated weight at
approximately 10%. The weight of the remaining 9 securities will be then proportionately reduced tobring the total weight of the index to 100%.

3.2.2

Additions and deletions due to corporate events
The general treatment of additions and deletions due to corporate events is aimed at minimizing
turnover in the MSCI Equal Weighted Indexes.
A security added to the Parent Index following a corporate event (e.g., merger, acquisition, spinoff) will
also be added to the MSCI Equal Weighted Index with an estimated capped weight.
In the event of a merger or an acquisition where an index constituent acquires another index
constituent or merges with another index constituent, the remaining company is maintained in theindex with a constraint factor calculated as the weighted average of the constraint factors before thecorporate event.
If a spun off security of an index constituent is added to the Parent Index, it will be added to the MSCI
Equal Weighted Index with the same constraint factor as the Parent Security.
A constituent deleted from the Parent Index following a corporate event will be simultaneously deleted
from the MSCI Equal Weighted Index.

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Appendix
Exhibit 1 provides a performance comparison of the MSCI World Equal Weighted Index with the MSCIWorld Index, which is market capitalization weighted.
Exhibit 1: MSCI World Equal Weight Index Total Return performance in USD relative to the MSCI World Index - December
1998 to December 2007

MSCI World Equal Weighted Index relative to MSCI World Index

170
160
150
140
130
120
110
100
90

Dec-07

Dec-06

Dec-05

Dec-04

Dec-03

Dec-02

Dec-01

Dec-00Dec-99Dec-9880

Exhibit 2 provides the annualized index risk and return for various equal and capitalization-weighted
country and composite indexes. During the period from December 1998 to December 2007, the MSCIWorld Equal Weighted Index outperformed the market capitalization weighted MSCI World Index by
5.2% annually. Volatility for the equal weighted indexes is slightly higher.
Exhibit 2: Annualized Risk and Return: December 1998 to December 2007
ReturnRisk1

THE WORLD INDEX

5.7%

13.4%

THE WORLD EQUAL WEIGHTED

10.9%

14.0%

EAFE

7.8%

13.9%

EAFE EQUAL WEIGHTED

12.0%

14.3%

EUROPE

8.0%

15.2%

EUROPE EQUAL WEIGHTED

11.9%

16.6%

EM (EMERGING MARKETS)

20.1%

21.0%

EM EQUAL WEIGHTED

21.7%

20.1%

AC WORLD INDEX

6.5%

13.6%

ACWI EQUAL WEIGHTED

14.4%

15.2%

USA

3.3%

13.9%

USA EQUAL WEIGHTED

7.6%

15.9%

JAPAN

4.6%

17.9%

JAPAN EQUAL WEIGHTED
7.4%
Note: 1 Risk is measured as annualized standard deviation of monthly returns

18.7%

Exhibit 3 and 4 show weights for respectively the top and bottom ten companies in the capitalization
weighted MSCI World Index and their corresponding weights in the MSCI World Equal Weighted Index.
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May 2011

It highlights that in the MSCI World Equal Weighted Index the smaller capitalization securities willproportionally have higher weight relative to their weight in a capitalization weighted index.
Exhibit 3: Largest Ten Securities by Market Capitalization in the MSCI World Index

Company Name

Weight in the MSCI

Weight in theWorld Index

MSCI World Equal
Weighted Index

Exxon Mobil Corp.

1.82%

0.05%

General Electric Co.

1.33%

0.05%

Microsoft Corp.

1.05%

0.05%

AT&T Inc.

0.89%

0.05%

BP PLC

0.82%

0.05%

Procter & Gamble Co.

0.80%

0.05%

Chevron Corp.

0.70%

0.05%

Vodafone Group PLC

0.69%

0.05%

HSBC Holdings PLC

0.69%

0.05%

Johnson & Johnson

0.68%

0.05%

Total

9.46%

0.51%

Data as of December 31, 2007
Exhibit 4: Smallest Ten Securities by Market Capitalization in the MSCI World Index

Company Name

Weight in the MSCI Weight in theWorld Index

MSCI World Equal
Weighted Index

Aderans Holdings Co. Ltd.

0.0009%0.05%

Wihlborgs Fastigheter AB

0.0009%0.05%

Haw Par Corp. Ltd.

0.0009%0.05%

Hoganas AB

0.0009%0.05%

Fuji Soft Inc.

0.0008%0.05%

Billerud AB

0.0008%0.05%

Vector Ltd.

0.0008%0.05%

Goodwill Group Inc.

0.0007%0.05%

Quebecor World Inc.

0.0003%0.05%

Johnson & Johnson

0.0003%

0.05%

0.01%

0.51%

Total
Data as of December 31, 2007

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The company’s flagship product offerings are: the MSCI indexes with approximately USD 8 trillion estimated to be benchmarked to them on a worldwide basis1; Barra
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1

As of September 30, 2013, as reported on January 31, 2014 by eVestment, Lipper and Bloomberg

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