Designed to help analyze and manage equity and currency exposures
The impact of currencies on the performance and the volatility of international equity indices has been substantial at times - both positively and negatively. While there are times during the investment cycle when investors may be comfortable taking the equity and the currency risk together, there are other times when decomposing the two can be useful. To help institutional investors analyze and manage their equity and currency exposure in different ways, MSCI has developed a range of hedging and currency indices that can be used in asset allocation, portfolio construction, portfolio implementation and performance measurement.
The MSCI Hedging & Currency Indices comprise:
- MSCI Daily Hedged Indices: designed to reflect the equity performance of a currency-hedged portfolio. MSCI provides either fully or partially hedged versions
- MSCI FX Hedge Indices: designed to reflect the performance of a currency hedge on a regional MSCI equity index, excluding the equity market performance
- MSCI Global Currency Indices: designed to reflect the total return of the currency performance alone (plus accrued interest from holding the currencies) in a regional MSCI equity index
Below is a brief overview of the use cases and methodology for each of the indices:
| Index | MSCI FX Hedge Indices | MSCI Hedged Indices | MSCI Global Currency Indices |
|---|---|---|---|
| Use Case | Investors seeking to measure the impact of hedging a market index | Investors seeking to measure the return of a currency hedged market index | Investors seeking to measure only the currency return of a market index |
| Objective | Reflect the performance impact of currency hedging an MSCI equity index | Reflect the equity performance on an MSCI equity index, removing the currency effect | Reflect the total return of currencies and accrued interest from holding the currencies in the weighting of an MSCI equity index |
| Investment Process Reflected in the Index | Notionally "sell" FX forwards based on the market capitalization | Notionally "buy" equity portfolio and "sell" FX forwards based on the market capitalization | 1. Notionally "buy" FX forwards based on the market capitalization 2. Notionally "buy" home currency Libor deposits to capture the interest rate returns |
| Interest | Returns will be impacted by interest rate differences in the home and foreign currency interest rates | N/A | The index provides the interest rate of the foreign current interest rate |
| Dividends | N/A | Dividends will be included in the gross and net versions of the indices | N/A |
