STANDARDS AND POORS & DOW JONES THE INDEX MODEL AT WORK Harvard Case Solution & Analysis

STANDARDS AND POORS & DOW JONES THE INDEX MODEL AT WORK Case Study Solution

But, in the recent years Vanguard combined with the MSCI to create Vanguard MSCI emerging market ETF which was ranked 3rd in the top 10 ETP’s worldwide according to the results of 2012. Vanguard due to price cuts and the competition in the market decided to move away from the MSCI index and use FTSE and University of Chicago indexes; which created a Vacuum for the MSCI. The financial loss was not great as it measured to 3% of the 900 million revenue being generated by the MSCI, but the credibility loss was the major factor for MSCI. The move of its biggest partner, having a combined ETF valued at the 3rd in the world created a major upheaval in the market resulting in losses for the market capitalization of the MSCI.

Black Rock’s response was the “I-SHARES” ETF Funds which were introduced by the BARCLAYS BANK and came under the Black Rock when Barclay’s sold the business. These I-Shares were the ETF’s which were backed on the S & P 500 Index, and the ETFs market grew to $ 1 Trillion by 2010. Further, the Black Rock had considered filing with its regulators to create new indexes as they already had $ 1 trillion of market share in the US MARKET. Their response to create the index was solely based on the returns averaging about 40% according to the market report and further projections; as Black Rock was in business and was prestigious creating these indexes would be great for the organization in providing returns which was not more than 0.01 % out of line with the S & P 500 Index.

The question on who is right is provided on the timing, Black Rock is considered right because Vanguard was ahead of its time. The ETF were not yet launched, and the presence of VANGUARD with only S & P as its competitor was way back on time and credibility. The BLACK ROCK is of the same process, but there are not directly creating their indexes and funds, but are considering hiring professionals and integrating it further in the start of the management of their $ 1 trillion ETF’s and market information and position.

MSCI stock downfall after Vanguard’s Announcement, the opportunity to buy or not of MSCI Stock

MSCI was a large public entity with a market capitalization of $ 4 Billion in June 2012 with a $ 900.9 Million of Revenues with an operating margin of 35.7% operating margin. The announcement of the Vanguard had left the organization with a decline of less than 3% of the revenue while the market capitalization fell 27% of around $ 1 Billion in the amount.

This reason was due to the Vanguard opting for a personal index creation and the market information on other companies such as Black Rock as they were also part of the consumer list of MSCI.

The business of the MSCI was global and more than 45% of the sales were generated from global markets. In this contention, the opportunity to acquire the MSCI’s equity was a viable option as they had other businesses as well. The total revenue being generated of the form from the direct indexes business amounted to $ 136 Million of the total 900 Million of revenue; this is a 15% of the total revenue. The remaining 85% still existed for the organization even if the direct indexes business fail eventually.

The firm had capabilities and having a diverse nature of their markets spread globally, it would have been hard for the other global markets which make use of the firm’s capabilities. The share loss would have been taken as a major drawback, and lack of shareholder trust for the organization, but eventually it will fall back in its place. A reason for this was the time barrier which would be needed by the Vanguard and the Black Rock type organizations to create credible indices. Further, the credibility was also needed as it took S & P 500 at least 50 years to become the bench mark.

So Again, for this instance; the equity of MSCI should be purchased for the long term goal as the prices would increase and because the competitors are at least 2-3 years away to build the stand alone credibility for the public market. However, for the short term gains, it is not recommended as the market would collapse again for the MSCI due to heavy market following and its 3rd Ranking ETF with Vanguard which would lose value.

Future of the Index Provider business based on the articles and the Case.

According to my analysis and the references of the articles being mentioned and the case study; the Index Provider Business has moved towards a negative position as many organizations and the trend of the markets have moved towards a personal indexation objective which is being considered by different organizations such as Vanguard and the Black Rock.

According to the data of the 2018, the article of Rosemary Pearson “Index Anyone?” launched in Jan 2018; it has been provided that more than 3 Million of the indices are available in the public sector of the global economy. Many organizations are linked towards this business as the rate of profits are very high approximately 30-40% on the ranges with less costs due to the secondary data being easily purchase able or researched and heavy profit returns. (Pearson, 2018)

This trend has moved towards a negative market trend which will lead to a very diverse information in the market which will not cater to its needs as the supply is very high and reliability is low.

This further will impact the market negatively as many organizations and the market will make comparisons hard to determine due to different indexes being created and used by different industry individuals. Further, the inter dependency on the indices will also form part of the market as Self indexes being created by financial and fund management firms are also backed by FTSE and other indices, the data is not raw but taken from other markets. Credibility of the sources will become a major impact as many organizations compete in the same market, over the same data with reference to some index points change, this represents different organization with not much to offer to the public and only being considered in the business due to profit margins in the industry.

As we come forward to the S & P GLOBAL which changed its name from Mc Graw-Hill to influence on the above mentioned facts to provide that the name is prestigious and different from its parent group. For the organization, this trend moves towards a better view in the long term because it will discredit the whole index business in the short term but will also lead and provide cleansing as non-major players in the market will be flushed out in the future.

So, according to me S & P Global will retain its position and will only improve its market credibility and name in the long term.

Persuasiveness of this report and its criteria

This report performs all the desired tasks mentioned in the exam paper, with a proper word count, reference page cited properly, and mentioned calculation in the appendix criteria.

Further, the report is presented in a question answer focus but in narrative form which is easily understandable and according to the usage of the needs and requirements for which the report was sought for.

Further, this report will provide a brief insight and recommendations according to the writers own professional expertise which is a financial student and have keen insights in the Global Index Market.

Exhibits

Exhibit 1:

 

Providers Ranking Assets Worth ($M) % Share
Standard & Poor’s                             1                                      350,514 23.3%
DOW JONES                             7                                        59,278 3.9%
Venture Market Share 27.3%
Total Market                            -                                  1,503,193
Total Assets Worth                                      409,792
Combined Actual Revenues (M) $421
CAGR 38%
Operating Margin 50%
Profit $210.50
Discount Rate 0.15
Perpetuity (Million) $1,403.33
Mc Graw Hill Share $1,024.43
CME 's Share $342.41
News Corp $36.49

Exhibit 2:

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