Investor Education
Gen Y: The Next Generation of Investors
Gen Y: The Next Generation of Investors
Move over Baby Boomers, the next generation of investors is here and they plan on doing big things.
With Gen Y youth (born between 1981 and 2000) coming to an earning stage of their lives, it is worth noting that they behave differently from investors of the previous generations.
Gen Y, also known as Millennials, have grown up with the abundance of quality and timely information always within an arm’s reach. Young investors today use multiple sources of information that were not available to previous generations to make informed financial decisions. Therefore, investors of this era have become more independent and are inclined to perform research for their investments and finances on their own.
Side note: This is why we created Visual Capitalist. We want to inform the modern investor as quickly and efficiently as possible as they are inundated with a myriad of information every moment of every day. We believe visual learning is the best way to consume and retain useful information.
As Baby Boomers, and eventually Gen X, start to age and pull their investments to cover cost of retirement, more investment opportunities are opening up for Gen Y. In America, almost 20% of the population will be over the age of 65 by 2030. The older generation will go from being “wealth accumulators” to “wealth distributors”.
The economic collapse in the late 2000s led many young people to see their parents’ financial well-being fall apart. The newest generation of investors has learned that they need to be smart with their money and stay ahead of the game to avoid a similar fate.
Source: Sprinklebit blog – The Next Generation of Investors
Investor Education
How MSCI Builds Thematic Indexes: A Step-by-Step Guide
From developing an index objective to choosing relevant stocks, this graphic breaks down how MSCI builds thematic indexes using examples.
How MSCI Builds Thematic Indexes: A Step-by-Step Guide
Have you ever wondered how MSCI builds its thematic indexes?
To capture long-term, structural trends that could drive business performance in the future, the company follows a systematic approach. This graphic from MSCI breaks down each step in the process used to create its thematic indexes.
Step 1: Develop an Index Objective
MSCI first builds a broad statement of what the theme aims to capture based on extensive research and insights from industry experts.
Steps 2 and 3: List Sub-Themes, Generate Keyword List
Together with experts, MSCI creates a list of sub-themes or “seedwords” to identify aligned business activities.
The team then assembles a collection of suitable documents describing the theme. Natural language processing efficiently analyzes word frequency and relevance to generate a more detailed set of keywords contextually similar to the seedwords.
Step 4: Find Relevant Companies
By analyzing financial reports, MSCI picks companies relevant to the theme using two methods:
- Direct approach: Revenue from a company’s business segment is considered 100% relevant if the segment name matches a theme keyword. Standard Industrial Classification (SIC) codes from these directly-matched segments make up the eligible SIC code list used in the indirect approach.
- Indirect approach: If a segment name doesn’t match theme keywords, MSCI will:
- Analyze the density of theme keywords mentioned in the company’s description. A minimum of two unique keywords is required.
- The keyword density determines a “discount factor” to reflect lower certainty in theme alignment.
- Revenue from business segments with an eligible SIC code, regardless of how they are named, is scaled down by the discount factor.
The total percentage of revenue applicable to the theme from both approaches determines a company’s relevance score.
Step 5: Select the Stocks
Finally, MSCI narrows down the stocks that will be included:
- Global parent universe: The ACWI Investable Market Index (IMI) is the starting point for standard thematic indexes.
- Relevance filter: The universe is filtered for companies with a relevance score of at least 25%.
- False positive control: Eligible companies that are mapped to un-related GICS sub-industries are removed.
Companies with higher relevance scores and market caps have a higher weighting in the index, with the maximum weighting for any one issuer capped at 5%. The final selected stocks span various sectors.
MSCI Thematic Indexes: Regularly Updated and Rules-Based
Once an index is built, it is reviewed semi-annually and updated based on:
- Changes to the parent index
- Changes at individual companies
- Theme developments based on expert input
Theme keywords are reviewed yearly in May. Overall, MSCI’s thematic index construction process is objective, scalable, and flexible. The process can be customized based on the theme(s) you want to capture.
Learn more about MSCI’s thematic indexes.
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