MSCI

SA #1: MSCI – Even Quality Can Become Too Expensive

MSCI: Even Quality Can Become Too Expensive
November 9, 2022

Summary

  • On October 25, MSCI reported quite strong 9M numbers and, for the moment, defended its high multiples (LTM P/E about 44).
  • In this article, I focus on a high-level valuation of MSCI to decide if it’s worth analyzing the stock in more detail.
  • Using a standard DCF-WACC model, market data for interest rates, and reasonable estimates for future fundamentals suggests massive overvaluation (theoretical downside of 54%).
  • The result is very similar when comparing MSCI to common valuation multiples of a peer group. Depending on the multiple, the company trades at a premium of up to 60%.
  • MSCI is undeniably a very high-quality company. But at the current levels, the company just appears way too expensive. So I am not yet interested.


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AgPa #1: Index Whales

Index Providers: Whales Behind the Scenes of ETFs (2021)
Yu An, Matteo Benetton, Yang Song
Invited for submission to the Review of Financial Studies, URL

The first research paper examines a specific area of the asset management industry: Exchange Traded Funds (ETFs) and index providers, the companies selling market indices like the S&P 500.

In a remarkable combination of empirical analysis and theoretical modeling, the authors present several interesting results:

  • Index providers are an oligopoly
  • ETF investors care about the index
  • Index providers capture 1/3 of ETF fees
  • Index providers are extremely profitable

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