MSCI: Whoever Measures the Market, Owns It

"Don't look for the needle in the haystack. Just buy the haystack!"

– John C. Bogle, Founder of Vanguard

Indexing.

It has been the name of the game over the past years. If not decades.

It all started in 1975 when John Bogle made a bet that nearly turned him into the laughingstock of Wall Street. His First Index Investment Trust (later Vanguard) gave up on the thing everyone considered the actual craft: stock picking. No brilliant analysts, no hot hand, no attempt to beat the market. Bogle simply wanted to own the market. The industry responded with ridicule. A famous campaign declared index funds outright «un-American» — you were paying fees to be guaranteed mediocrity, locking in average returns with no attempt to do better.

You know how the story ends. Today, passive funds hold the majority of US equity fund assets — they crossed the 50% mark and never looked back (chart 1). Bogle was right: beating the market is hard, owning it is easy.

But hold on. If you want to own «the market» — who tells you what the market is? Who decides which 1'400 stocks represent the developed world outside the US? Which stock is an «Emerging Market» and which is «Frontier»? How is the weight defined?

Who draws the line?

This is where it gets interesting. Because the real winner of the passive revolution wasn't Bogle. It wasn't even Vanguard. It was the invisible cartographer working in the background — the one who draws the map everyone else navigates by. Every ETF needs a blueprint. Every pension fund manager needs a yardstick. Every investor who wants to know whether they did well or badly need a benchmark they trust.

Indexing no longer means just measuring. It means steering. And whoever draws the map decides where the capital flows.

This very map has been drawn since 1968 by one company — founded back then as a division of Capital Group, acquired by Morgan Stanley in 1986 and stamped with its name.

Enter Morgan Stanley Capital International.

In short: MSCI.

Chart 1: Active vs Passive Fund Share of US Equity Fund Assets

MSCI’s Business Behind the Benchmarks

Yes — that's the company behind the MSCI World and the All Country World Index (ACWI), the benchmark sitting quietly inside half the ETFs you've ever owned.

What MSCI sells is, at heart, trust — wrapped in methodology. More than 240'000 indexes, from the ACWI to the Emerging Markets to the climate and factor benchmarks.

And here's the beautiful part.

Nobody leaves.

Picture yourself as an asset manager who has benchmarked against the MSCI World for fifteen years. Want to switch? Then you must rewrite your mandates, rebuild your systems, re-explain your historical performance, and justify to your investors why the yardstick has suddenly changed. The effort dwarfs the savings. The result is a retention rate of roughly 96% — and cancellations almost never come from dissatisfaction, but because a fund closes or merges.

MSCI makes money in two ways (chart 2).

First, through subscriptions: fixed, long-term licensing fees for benchmarks, analytics, and data. Around 98% of revenue is recurring. Second — and this is where it gets clever — through asset-based fees: a tiny sliver (roughly 2.4 basis points) on the assets sitting inside ETFs that track an MSCI index. You don't pay for a product. You pay a toll on every dollar that crosses the bridge MSCI built.

On top of that come Analytics (Barra, RiskMetrics — risk and portfolio tools, around 20–25% of revenue) and the bet that made headlines: Sustainability & Climate. MSCI went early and big on ESG. And for a while, it paid off spectacularly. The ESG boom through Covid and 2021 washed in growth rates of nearly 30%.

Then came the war in Ukraine.

Suddenly investors wanted defence and oil again, not virtue. In the US, «ESG» went from badge of honour to political trigger word. The segment that had just been gleaming slowed to single-digit growth. An instructive moment: even the cartographer can misjudge which way the travellers want to go.

But that's a sideshow. The core remains. And here's why we keep coming back to it.

At arvy, three things make us sit up straight:

1. toll-booth monopolies that charge a fee on activity they don't have to perform,
2. recurring-revenue compounders where the same dollar comes back year after year,
3. and «picks & shovels» businesses that sell to everyone in a gold rush without betting on any single miner.

We've written about each — the unfair fights we love, the razor-and-blade machines (e.g. Swiss Schindler), the pickaxe sellers (e.g. Nvidia). Most great businesses are one of these.

MSCI is all three at once.

It's a toll booth (asset-based fees), a subscription compounder (98% recurring), and the ultimate picks-and-shovels play on passive investing — it doesn't run a single ETF, it just licenses the map. That rare overlap is what gives the business its almost uncanny quality: the higher the markets climb, the higher the assets in the ETFs, the higher the fees flowing to MSCI.

Think of the trillions that have poured into passive ETFs carrying the MSCI stamp over the past two decades. MSCI clips a few basis points on every one of them — and those points compound straight to the bottom line.

In its purest form, MSCI doesn't just track the market.

It is a leveraged bet on it.

And that's not all.

Chart 2: MSCI's Segments — Index $0.5B → $1.6B, Analytics, Sustainability, Private Assets

When MSCI’s Assets Rise, Income Rises

Let's look at that beta more closely.

Since 2008, the assets in ETFs tracking MSCI indexes have grown from $119 billion to over $2 trillion — an 18% annual clip. Across all products that benchmark to MSCI, the figure is over $18 trillion. Two forces drive it: inflows (new money going passive) and market appreciation (the existing assets rising along with the markets).

This is where the lever sits.

MSCI doesn't have to lift a finger to earn from a bull market. The index toll ticks upward on its own. If the MSCI World rises 20%, then — all else equal — the asset-based fees rise 20%.

Without a single new client.

And the margins are simply extraordinary. The Index segment delivers EBITDA margins north of 76%. Group gross margin runs around 84%, net margin around 40%, ROIC above 30% — the kind of figures you see in a company sitting at the centre of something indispensable while needing almost no capital to grow. What comes in flows almost straight through to free cash flow. We saw the same operational beauty in Nu Holdings and its 20% efficiency ratio — different industry, same lesson: own the rails, not the train.

And the valuation?

Over the past five years, MSCI traded at an average P/E of roughly 37. Today it sits around 31. Average FCF yield was 2.9%, today closer to 3.4%. In other words: the business has gotten better over the years — and the stock is valued more cheaply than its own five-year average.

A good story. A wonderful business. A reasonable valuation.

That's the “Good Story” we can agree on.

Time for the “Good Chart.”

Spoiler: It is coiling.

Chart 3: MSCI's AUM growth — $119B → $1.78T, 18% CAGR

MSCI's Long Base Awaiting the Push into Space

There's an old saying among traders — one we covered in our 15 Stock Market Sayings.

«The longer the base, the higher the space.»

The idea behind it is almost physical. When a stock moves sideways for months — sometimes years — something happens beneath the surface. Smart money accumulates. Weak hands give up. Tension builds like a compressed spring. And the longer the compression lasts, the more powerful the release when the price finally breaks above resistance. Long bases signal not short-lived spikes but durable, reliable trends.

Now look at MSCI over the past few years (chart 4). This is the «Good Chart» we promised — and it's a beauty.

Since the 2021 high — around $650 — the stock never decisively cleared it. A ceiling the price kept bumping into, year after year. A textbook multi-year consolidation beneath a clear lid.

But look closer at the floor.

Because the second signal is hiding there — and it's the one that matters most. Each pullback, the price stops falling a little earlier, a little higher than the last. 2022. 2023. 2024. 2025. 2026. Five valleys, each one shallower than the one before.

Higher lows.

It's the most bullish footprint a chart can leave. Every dip that refuses to go as deep as the last is a quiet message: the sellers are running out of ammunition, and the buyers are stepping in earlier, more confidently, at ever-higher prices. The floor isn't flat. It's tilting upward — pressing the price against that $650 ceiling like a rising tide against a dam.

A compressed (coiling) spring, squeezed from below.

And right now, as I write this, MSCI trades again at the upper edge of that years-long range, exactly where the old ceiling sat. The base is long. The lows are rising. The spring is wound to its maximum. The price stands at the threshold.

Should MSCI break out decisively here (lots of buying interest in the form of volume), it wouldn't just be a technical signal. It would be the confirmation of the entire story: an indispensable business that profits from every rising market, that nobody can leave, that consists almost entirely of margin — and whose stock, after years of patience, is finally taking its run-up.

A “Good Story” and a “Good Chart”, finally pointing the same direction.

Bogle taught the world to buy the haystack. MSCI decides which straws go in it — and clips a fee on every bale.

The base is laid. The lows are climbing. The space above is vast.

MSCI is waiting in ambush.

Chart 4: MSCI over the last 5 years