Countdown to launch of new ASX indexes for ESG boom

MSCI is set to launch a new range of indexes on the ASX to capitalise on our superannuation system and a boom in ESG investing.

Two children and a dog get set to launch their friend rocketing high into the sky.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX share market looks set to gain yet another new tranche of indexes in 2021.

Until now, ASX exchange-traded funds (ETFs) that track the Australian share market follow a very narrow range of ASX-based indexes. These mostly revolve around the flagship S&P/ASX 200 Index (ASX: XJO). However, there are other less-used indexes, such as the S&P/ASX 300 Index (ASX: XKO).

But as you might have noticed, most of these 'ASX-only' indexes are run by S&P Global Inc (NYSE: SPGI).

But today, we have news that another global index provider in MSCI is set to join the party.

Who's this?

MSCI (formerly Morgan Stanley Captial International) is a New York-based company known for its globe-spanning indexes. Although MSCI currently does not offer ETFs, ASX investors might be familiar with some ASX ETFs that already track MSCI indexes around the world.

These include the Vanguard MSCI Index International Shares ETF (ASX: VGS), the iShares MSCI South Korea ETF (ASX: IKO) and the iShares MSCI Emerging Markets ETF (ASX: IEM).

But in Australia, MSCI is moving from the backroom to the open in offering its own indexes that exclusively track ASX shares. The Australian Financial Review (AFR) reported today that MSCI is launching more than 50 Australian indexes this week. According to the report, MSCI has been "quietly" working with super funds, ETF providers and fund managers over the last few months on the new offerings.

The new indexes will be grouped into four areas: market capitalisation, factor, thematic, and ESG (environmental, social and governance).

The market cap indexes will group ASX shares based on size (eg large-cap, small-cap), while the factor indexes will revolve around labels like value, quality or momentum.

Thematic indexes will cover specific sectors or areas of interest, such as real estate or resources. The ESG offerings will include a universal ESG index and others based on factors like climate change and excluding fossil fuels.

ASX is the pick of the bunch

The AFR reports that Australia is one of only 2 markets that MSCI has chosen to build a portfolio of domestic indexes. That's due to 2 reasons.

Firstly, the large capital base that our unique superannuation system provides. With at least 9.5% of the country's pre-tax income going into the superannuation system every year, there is a wide capital base to work off and a long runway for growth. Clearly, MSCI has noticed and is banking on super funds offering investments that may track MSCI's indexes in the future.

Secondly, the shift towards ESG investing in Australia. That AFR report states there is "a hunger for index-based strategies that can better replicate their investment philosophies". That spills over into which super products and investments Australians might choose to direct their super into.

MSCI clearly sees an opportunity here as the report states that the company wants to "work with each fund to create custom indexes that can reflect the fund's ESG view".

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A man has computer-generated images rushing through his head indicating an AI (Artificial Intelligence) concept of a communication network.
Technology Shares

ASX investors are obsessed with Nvidia shares! Here's why

The global chipmaker reported a 94% increase in annual revenue in the third quarter.

Read more »

A man wearing a red jacket and mountain hiking clothes stands at the top of a mountain peak and looks out over countless mountain ranges.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another disappointing day for ASX investors this Thursday.

Read more »

two racing cars battle to take first place on a formula one track with one tailing the the leader and looking to overtake the car.
Opinions

Down 21% in 2024. This ASX 300 stock looks like a money-making monster

Profits are expected to plunge, but the future could still be bright.

Read more »

A businesswoman exhales a deep sigh after receiving bad news, and gets on with it.
52-Week Lows

Down 68% from highs, this ASX 200 stock just hit a 4-year low. Time to pounce?

Is this beaten down stock a buy? Let's see what one leading broker is saying.

Read more »

two men smiling with a laptop in front of them, symbolising a rising share price.
Share Gainers

Why Pinnacle, PWR, Race Oncology, and Vulcan shares are flying today

These shares are having a good session on Thursday. But why?

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Accent, Sayona Mining, Web Travel, and Weebit Nano shares are dropping today

These shares are having a tough time on Thursday. Why are they being sold off?

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Share Market News

Insider buying alert: 3 ASX 200 shares directors are snapping up right now

Directors in some of Australia's blue-chip businesses aren't shying away from the market.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Broker Notes

Guess which beaten down ASX share is rocketing 11% today

Why are investors buying this beaten down stock? Let's find out.

Read more »