New stock index helps investors target companies leading the charge to a ‘resilient future’

A new stock index from financial data and services firm MSCI provides investors with a more focused way to screen for eight themes within the sustainable investing category and early calculations show it has the potential to beat the returns of the overall global market index from which it is derived.

The MSCI Resilient Future Indexes include companies associated with the development of products or the provision of services focused on alternative energy, hydro-power generation, batteries and EV value chain, smart grids, future fuels and technology, alternative food and agriculture, water solutions and natural-capital protection.

“An increasing number of investors are keen to capitalize on the financial opportunities presented by companies participating in the evolution toward a sustainable economy and actively engaged in building a resilient future,” MSCI said this week on its website in an explainer on the index. “The resultant technological innovation presents an opportunity to invest in companies at the forefront of this shift.”

The MSCI ACWI IMI Resilient Future Index, the broadest index in the group, contained 310 companies  as of May out for more than 8,800 constituents in the MSCI ACWI IMI index from which it is drawn.

Backtesting the data on the index found that it would have gained 13.6% over the period from November 2016 to May 31, 2024, versus the MSCI ACWI IMI Index, which gained 11.1%. The U.S. only version of the index narrowly trailed its U.S. total market counterpart over that same period with 13.1% gain versus 13.%.

As of June 3 the four largest sectors in the MSCI ACWI IMI Resilient Future Index were industrials (41.7%), materials (24.7%), consumer discretionary (primarily due to the high allocation to the automobiles and components industry) (11.6%) and utilities (11.5%).

In terms of country composition, the U.S. has the largest weight (58.8%) followed by France (6.8%), Japan (5%) and China (4.8%). The security-selection process within each subtheme spans sectors and countries.

“Investors with sustainable objectives may be guided by different priorities. Some aim to reduce current carbon emissions and potential emissions from fossil-fuel reserves by limiting their exposure to likely stranded assets,” wrote the authors who devised the methodology for the indexes — Saurabh Katiyar, MSCI executive director, Nell Ng, MSCI executive director, and Yaonan Zhang, MSCI vice president.

But others “seek to invest in environmental solutions that could support the shift to a sustainable economy, choosing to allocate to companies actively engaged in building a resilient future. The MSCI Resilient Future Indexes are aligned with the latter approach, selecting constituents that are exposed to environmental-opportunity themes through their products or services,” they wrote.

Read more: Morningstar strengthens its ESG rating tool for investors