VIDEO Investors have witnessed a huge surge in interest for all types of passive investing products. These types of investments—and in particular, those in the ETF world—have seen sizable inflows as more and more look for a buy-and-hold approach, or seek to reduce costs by looking to index-based funds instead of actively-managed securities which tend to be a bit more expensive, on average. This has been great news for index companies, as their benchmarks have become increasingly in-demand as of late. And with fund companies often paying licensing fees to use the indexes based on assets under management, a boon in fund assets is a win for index providers too. ( These trends make index providers worth a closer look, and that is why investors might want to put MSCI ( MSCI - Free Report) ) on their radars now. Why MSCI? MSCI operates in a couple different areas, including analytics, ESG/social research, real estate analysis, and of course, the index division which provides equity benchmarks for companies, as well as portfolio construction and rebalancing solutions. Analysts are becoming increasingly bullish on this business model as of late, and it doesn’t hurt that the company has a great track record in beating earnings estimates either. In fact, it is showing an average earnings surprise of 5.6% in the past four quarters, and it appears somewhat optimistic on the full year time frame too. I say that because analysts have also been increasing estimates for the current quarter and the current year as of late, and we actually haven’t seen any estimates (at all) go lower for the current quarter or the current year in the past two months. These analyst moves have also had a nice impact on the consensus estimate, as this has seen a boost over the past few weeks. In fact, the current quarter estimate has increased by roughly 5.5% in the past two months, while the full year estimate has increased by 4.4% in the same time frame.
With these kinds of numbers and a great industry rank, it shouldn’t be surprising to note that MSCI was just upgraded into Zacks Rank #1 (Strong Buy) territory within the past week. That is why we think this could be a stock that has some potential in the near term, and especially after the recent dip in the share price. Bottom Line The index world is looking pretty impressive these days as more investors clamor for cheap benchmark-backed products. This is having a great impact on companies like MSCI, and analysts are definitely taking note. After all, in the past year, MSCI has seen its index segment’s margins soar, while revenues are up 16.5% in year-over-year terms. A big chunk of this is due to asset-based fees, as MSCI experienced a 54% increase in exchange-traded product revenue, just in the past year. And since this is such a scalable business and one that could still have plenty of room to run, it is easy to see why this is a stock worth watching for investors looking to play off of one of the biggest trends in the world of finance right now.
And for more on indexes, make sure to check out my recent podcast which examines SNAP and how it is being barred from several benchmarks due to its share class structure: Snapchat Won’t Be in the S&P 500, Should Investors Care?
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