In this episode of The Intrinsic Value Podcast, Shawn and Daniel analyze MSCI, a leading index provider, discussing its business model, competitive advantages, and potential risks. Shawn presents MSCI as a high-quality compounder, highlighting its dominance in international equity indexes and its toll road-like business. Daniel emphasizes MSCI's brand recognition and its role as a gold standard for reflecting market performance. They delve into MSCI's history, its relationship with Morgan Stanley, and its revenue streams, including subscriptions, asset-linked fees, and transaction royalties. The conversation explores the impact of passive investing, the financialization of the economy, and the rise of ESG investing on MSCI's business. While acknowledging MSCI's strong financial metrics and founder-led management, they raise concerns about declining take rates, competition, and the potential disruption from direct indexing. Ultimately, they decide that while MSCI is a high-quality company, its current valuation and the uncertainties surrounding its future make it an unsuitable addition to their portfolio at this time.
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