MSCI says index inclusion can broaden companies' investor base

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MSCI index inclusion broadens investor base

Highlights

MSCI reports over USD 21 trillion globally benchmarked to its indexes as of Dec. 31, 2025, with USD 2.8 trillion in ETFs by July 2026.
Stocks added to MSCI USA Index in November 2025 saw average idiosyncratic risk fall from 64% to 52% around the rebalance, reflecting increased liquidity and broader ownership.
In the U.S., indexed mutual funds and ETFs reached USD 21.76 trillion in long-term assets versus USD 18.58 trillion in active funds as of May 2026, highlighting passive investing dominance.

Rules-based reviews shape capital flows

As reported by MSCI, more than USD 21 trillion in assets under management is benchmarked to its indexes globally as of Dec. 31, 2025, while USD 2.8 trillion as of July 2026 sits in ETFs. That pool of index-linked capital can influence how widely a company is held and how visible it is to investors around the world.

MSCI says inclusion and deletion in cap-weighted indexes such as the MSCI USA Index follow publicly documented rules. Eligibility depends on factors including market capitalization, free float, liquidity and foreign ownership, while ranking and weighting are determined through scheduled index reviews.

The company says businesses can assess their own position against those criteria because the methodologies are rules-based and transparent. It adds that companies can also monitor their indexed assets under management exposure and weights across both new and existing indexes to understand potential shifts in ownership.

Ownership patterns and market effects

Research cited by MSCI says stocks added to widely tracked indexes tend to become more correlated with benchmark returns, while idiosyncratic risk, the share of price movement driven by company-specific factors, tends to fall. The group of investors holding such stocks also shifts, with more ownership tied to index-tracking mandates and index-based allocations rather than solely to fundamental security-level views.

In the U.S., indexed mutual funds and ETFs account for the majority of long-term fund assets, with USD 21.76 trillion versus USD 18.58 trillion in actively managed funds as of May 2026. MSCI says the reverse can also happen when a stock leaves a major index, as demand from index-tracking investors declines after removal.

MSCI points to its November 2025 review of the MSCI USA Index as an example. For stocks added in that review, average idiosyncratic risk fell from 64% to 52% across the three months before and after the rebalance, while for deleted stocks it rose from 24% to 27%, suggesting additions gain liquidity and broader ownership more quickly than removals fully affect returns.

The company says issuers looking to assess index effects can focus on three questions: which major indexes include them, what determines their eligibility and weight, and how much index-linked capital is associated with those positions. It adds that comparing performance with peer groups across industry, size and region can offer further insight into where a company is outperforming or lagging the broader market.

Our earlier article examined Wall Street’s next hurdle as the S&P 500 hovered near 8,000, with investors assessing whether strong Q3 earnings can offset headwinds from higher oil prices, elevated Treasury yields, and election-related uncertainty. It also underscored growing concerns about market breadth and concentration risk, as index performance has been heavily influenced by a small group of AI-linked megacaps.

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