Consultation on Introducing
Quarterly Comprehensive
Index Reviews for Non-Market
Capitalization Weighted
Indexes
SUPPORTING MATERIAL FOR SURVEY
May 2022
This survey may or may not lead to the implementation of any or all of the proposedchanges in the highlighted or any other MSCI indexes. Survey feedback will remain
confidential. MSCI may publicly disclose feedback if specifically requested by
specific market participants. In that case, the relevant feedback would be publishedtogether with the final result of the survey.
Information Classification: GENERAL© 2021 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

Background• In June 2021, after an extensive consultation, MSCI announced a shift to a Quarterly
Comprehensive Index Review (QCIR) schedule for the MSCI Global Investable Market Indexes(GIMI) following positive feedback from market participants.
• As an extension to this, MSCI proposes to change the rebalancing schedule from semi-annual toquarterly for select non-market capitalization weighted indexes:– MSCI Adaptive Capped Indexes Methodology– MSCI Equal Country Weighted Indexes Methodology– MSCI Equal Sector Weighted Indexes Methodology– MSCI Size Tilt Indexes Methodology• For the MSCI Islamic Indexes Methodology, the proposal is to change the business screening
review from annual to quarterly.
• MSCI welcomes feedback from the investment community on this topic until June 24, 2022. MSCI
will announce the results of this consultation on or before July 15, 2022.
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GIMI Consultation - Recap

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Benefits of moving GIMI to QCIR (1/2)• A key objective of the shift to QCIR schedule is to reduce the size of each comprehensive index review by
spreading changes more evenly across each of the QCIR periods while adhering to and maintaining
methodology objectives.
• Based on simulations from June 2008 to December 2021, we observed by shifting to QCIR:
Turnover spread more evenly across quarters

With limited impact on average annual turnover

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Benefits of moving GIMI to QCIR (2/2)
The number of additions and deletions per index review is more even

More timely reflection of index review additions and deletions• On average, based on the simulation
results, there are 12.65 additions and 12
deletions that were made earlier* in the
QCIR simulation (qtr) than in thesimulation based on existing rebalancing
schedule (semi).
*The additions or deletions in the quarterly scenario that happened 1-3 rebalance earlier than the addition or deletion in the base scenario. Late additions / late deletions may be due to later migrations in or out
because of differences in the size-segment cutoffs and target number of companies

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Methodology Review Process &Proposal

Information Classification: GENERALMethodology Review Process• MSCI performed historical analysis between June 2008 and December 2021 for all selected methodologies
except Islamic indexes which was performed between May 2018 and Nov 2021*, comparing a simulated
QCIR schedule with the existing rebalancing schedule for selected indexes. Parent (GIMI) Indexes arealso simulated using a QCIR schedule.

• As with the QCIR review of GIMI methodologies, the analysis was focused on the following:– Objectivity: Adherence with the methodology objective– Turnover: Average quarterly/annual turnover at each index review– Representativeness: Methodology requirement of full representation of the Parent Index• Across these methodologies reviewed, the proposal is supported by the following:– More consistent representation of the methodology targets along with the parent
representativeness– Reduced average turnover at Semi-Annual Index Reviews (SAIRs)– Annual turnover more evenly distributed across QCIRs but with a moderate increase in the total
turnover* Simulation is conducted from May 2018 to Nov 2021 for the MSCI ACWI Islamic and MSCI ACWI Islamic M Indexes

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Summary of Proposal to move to QCIR
Methodology Name

Proposal Comments*

MSCI Adaptive Capped Indexes
Methodology

Quarterly rebalancing would result in the consideration of parent additions at
QIRs and more frequent capping of the constituents at desired level

MSCI Equal Country Weighted
Indexes Methodology

The proposal addresses prolonged country weight dispersions, resulting when
the associated GIMI Parent Index moves to QCIR, by equal weighting the country
weights more frequently

MSCI Equal Sector Weighted
Indexes Methodology

The proposal addresses prolonged sector weight dispersions, resulting when theassociated GIMI Parent Index moves to QCIR, by equal weighting the sector
weights more frequently

MSCI Size Tilt Indexes
Methodology

Quarterly rebalancing results in the consideration of parent additions at QIRs andhence more alignment with the associated Parent Index without impacting size
factorMSCI Islamic Index Series
Methodology

Changing business screening review from annual to quarterly results in more
timely reflection of Sharia compliance with a minimal impact on simulated
turnover* Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERAL

8MSCI Adaptive Capped Indexes Methodology• Methodology:– The MSCI Adaptive Capped Indexes follow a capping approach where the cap level on theconstituent weights of the larger stocks at each semi-annual rebalance is not explicitly specified
but is instead determined by the pre-defined maximum weight multiple applied to the smaller(uncapped) constituents of the Parent Index– The level of the cap for each index would change whenever the associated Parent Index isrebalanced (quarterly)• Rationale for Recommendation*– Index objective: Aligns with the methodology objective that the indexes should be rebalanced withthe same frequency as the Parent Index– Turnover: Although the average annual turnover increased moderately when moving to QCIR, it isobserved that there is a reduction in turnover at SAIRs along with more consistent turnover at QIRs
– Representativeness: Quarterly rebalancing would result in the consideration of parent additions at
QIRs and hence more frequent and timely capping of the constituents at desired level* Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERAL

9MSCI Adaptive Capped Indexes - Key Metrics Comparison

These Key Metrics are derived from simulation and the details are available in the Appendix

Information Classification: GENERALMSCI Equal Country Weighted &MSCI Equal Sector Weighted Indexes Methodology• Methodology:– In MSCI Equal Country and Sector Weighted Indexes, each Country and Global Industry
Classification Standard (GICS®) sector has the same weight at initial construction and ateach rebalancings. Between semi-annual index reviews, these weights deviate from equal
weights depending on the relative performance of countries and sectors• Rationale for Recommendation*:–Index objective: Addressing the prolonged country and sector weight dispersion in therespective methodologies when the associated GIMI Parent Index moves to QCIR
–Turnover: Although the average annual turnover increased moderately when moving to QCIR,
it is observed that there is a reduction in turnover at SAIRs along with more consistent
turnover at QIRs
–Representativeness: Equal weighting country and sector weights in respective
methodologies more frequently accounts for parent changes every quarter* Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

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MSCI Equal Sector Weighted Indexes - Key Metrics
Comparison

These Key Metrics are derived from simulation and the details are available in the Appendix

Information Classification: GENERALMSCI Equal Country Weighted Indexes - Key Metrics
Comparison

These Key Metrics are derived from simulation and the details are available in the Appendix

Information Classification: GENERALMSCI Size Tilt Indexes Methodology• Methodology:– The MSCI Size Tilt Indexes aim to capture the Low Size premium with a simple andtransparent methodology while maintaining reasonably high trading liquidity and investment
capacity by including all Parent Index constituents and weighting the constituents using thesquare root of their market capitalization weight• Rationale for Recommendation*:–Index objective: To ensure GIMI representation while maintaining the target factor whenmoving to QCIR
–Turnover: Although the average annual turnover increased moderately when moving to QCIR,
it is observed that there is a reduction in the turnover at SAIRs along with more consistent
turnover at QIRs
–Representativeness: Quarterly rebalancing results in the consideration of parent additions at
QIRs and hence more alignment with the associated Parent Index* Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

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MSCI Size Tilt Indexes - Key Metrics Comparison

These Key Metrics are derived from simulation and the details are available in the Appendix

Information Classification: GENERALMSCI Islamic Indexes Methodology• Methodology:– The MSCI Islamic Indexes excludes all non-Sharia-compliant securities through businessscreening review and financial ratio screening• Recommendation:– The proposal is to change the business screening review from Annual (May) to Quarterly• Rationale for Recommendation:– Turnover: The average annual turnover increased moderately– Flip-flop*: The number of flip flops per rebalance increased moderately– Representativeness: Moving to a quarterly business screening review improves index
representativeness by deleting non-compliant securities and adding compliant securities
earlier– This also aligns with the financial ratios screening, which is already applied on a quarterly
basis*Flip flop: defined as a change in the opposite direction in terms of index addition or deletion in the next 3 rebalance. Please refer to the Appendix for more details

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MSCI Islamic Indexes - Index Representativeness• The charts show the potential benefits, based on
simulated results, of moving to a quarterly schedule interms of a timelier reflection of company financials andtheir respective Sharia compliance– Moving to a quarterly schedule allows more timely deletion(yellow) of non-compliant names and addition (blue) ofcompliant names– It also ensures that additions (green) are added based on thelatest business screening results (not from the results of theannual review)
Islamic A

Islamic M

Early Adds (avg per year)

1.75

2.00

Early Deletes (avg per year)

6.50

5.50

Total (avg per year)

8.25

7.50

Business non-compliant additions(total)3

5* The charts show the number of changes (e.g., additions or deletions) observed in the specific quarter under the base scenario that have been reflected in earlier 3 quarters under the quarterly scenario.

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Appendix

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Simulation Details and Underlying Assumptions• The simulations were performed over the period from June 2008 till December 2021
except Islamic Indexes which were simulated from May 2018 to Nov 2021

• “semi” scenario refers to 2 Index Review schedules in May and November as per current
rebalancing schedule while “qtr” refers to 4 simulated Index Review schedules in February, May,
August and November• The “semi” scenario assumes the 2 SAIR rebalancing schedule but does not correspondto the actual rebalancing results in live indexes and is based on underlying QCIR
based Parent GIMI Indexes• Assumptions for simulated GIMI QCIR can be found on the slide 14 of the GIMI QCIR consultation
document posted at https://www.msci.com/index-consultations• Any changes due to market reclassifications were taken into account in respective
regional indexes

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MSCI Adaptive Capped Indexes
Methodology

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World Adaptive Capped – Number of Constituents
Comparison
More timely reflection of index review additions

Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

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World Adaptive Capped - Turnover
Turnover spread more evenly across quarters withslight impact on annual turnover.

Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEM Adaptive Capped - Number of Constituents Comparison

Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEM Adaptive Capped - TurnoverBased on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALMSCI Equal Country Weighted &MSCI Equal Sector Weighted Indexes
Methodology

Information Classification: GENERALEM Equal Sector Weighted Index – Sector Weights per
Quarter
Addresses prolonged sector weight* dispersion

Charted lines represent aggregate sector weights at each quarter
Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEM Equal Sector Weighted Index - TurnoverBased on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEAFE Equal Sector Weighted Index – Sector Weights
per Quarter
Addresses prolonged sector weight* dispersion

Charted lines represent aggregate sector weights at each quarter
Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEAFE Equal Sector Weighted Index – TurnoverBased on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEM Equal Country Weighted Index – Country Weights
per Quarter
Addresses prolonged country weight* dispersion

Charted lines represent aggregate country weights at each quarter
Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEM Equal Country Weighted Index – TurnoverBased on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEAFE Equal Country Weighted Index – Country
Weights per Quarter
Addresses prolonged country weight* dispersion

Charted lines represent aggregate country weights at each quarter
Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALEAFE Equal Country Weighted Index – TurnoverBased on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALMSCI Size Tilt Indexes Methodology

Information Classification: GENERAL

World Size Tilt - TurnoverBased on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERAL

World Size Tilt – Number of Constituents Comparison

Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALMSCI Islamic Indexes Methodology

Information Classification: GENERAL

Proposed Methodology Enhancement – Quarterly
Application of Business Screening Review• MSCI proposes to change the business activity screening frequency from Annual (May) to
Quarterly– This also aligns with the financial ratios screening which is already applied on a quarterly basis
Rebalance

Current Business Screening Universe

Proposed Business Screening Universe

May

Full universe

Full universe

August- Parent additions from last quarter- IPOs / Spin offs / Mergers- Intra quarter deletions (GICS changes)- Securities with GICS code changes (not to an
ineligible GICS)

Full universe

NovemberFebruary

Annual Business Screening Review-

Full universe
Full universe
Quarterly Business Screening Review

Securities that are no longer business compliant basedon latest data may still be added as they are marked tobe compliant from the last annual review-

Changes to the financials of a company are reflected in
the next quarterly index review, instead of waiting until
the next annual review

Information Classification: GENERAL

Simulation Details and Summary of Impact• Simulation is conducted from May 2018 to Nov 2021 for the MSCI ACWI Islamic and MSCIACWI Islamic M Indexes– The simulation aims to show the impact of changing the schedule of the business screening review
from annual to quarterly– The simulation does not consider the impact of the change in the Parent GIMI Index to QCIR– The base scenario reflects annual business screening review in May, while the quarterly scenario
reflects quarterly business screening review• Moving to a quarterly business screening review improves index representativeness by– Deleting non-compliant securities and adding compliant securities earlier,– Helping to prevent addition of already non-compliant securities• Based on simulation, the impact on average annual turnover is less than 1%

Information Classification: GENERAL

Flip Flop (per rebalancing)• Flip flop is defined as a change in the opposite direction in terms of index addition or deletion in the next
3 rebalance• In terms of flip flops at index level, as per simulations, the number of cases increases by around 1 caseper rebalancing on average

10.82

Islamic Base

11.18

Islamic Quarterly

Islamic M Base

9.09
2.45
10.09

Islamic M Quarterly

Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALAverage Additions

171.00237.25168.25233.50

Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERALAverage Deletions

197.75159.00196.25155.50

Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

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Turnover
8.77%
7.04%

4.57%

4.74%

4.76%

7.50%
6.68%
5.90%

5.02%

6.00%

2.94%

25.02%

24.13%

Based on the results of simulations, the process for which is detailed on slide 7 and underlying assumptions on slide 19

Information Classification: GENERAL

3.05%

3.51%

3.12%

3.30%

3.76%

14.19%

13.78%

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