Investor Education
5 Facts on Moving Oil By Water
5 Facts on Moving Oil By Water
This infographic is brought to you by the Canadian Chamber of Commerce.
Advance of technology, better practices and stricter regulations and policies have made the transportation of oil safer. However, the concern shown by British Columbians is equally valid, as we have seen the devastation that can be caused by a major oil spill.
This is an important issue because the Canadian Oil Boom has transformed Canada into a major oil player on an international level, especially with the oil sands in Alberta and the associated Keystone XL Pipeline. A steady rise in global demand is putting tremendous pressure on Canada to produce more oil.
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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