Paul Harris, CFAMSCI Inc.MSCITOP PICKSep 03, 2024

Main provider of international-focused indices, which they license out. Very high margins and strong free cashflows. Benefiting as investors increasingly look outside US for market exposure. 

Shares sold off on its being a data-services company, plus worries that active managers are in trouble from passive investing. Demonstrated ability to pivot. Big presence in ETF market. Shares trading more cheaply than they have for a while. Yield is 1.40%.

Great business, continues to grow. Diversifying outside traditional indexes into alternative asset classes. Lots of portfolio risk-management products.

Has 30k+ different indices. Used (and fees paid) by banks, asset managers, hedge fund managers. Will benefit from more ETFs created for international markets and stocks. Margins are near 100%, as they just reorganize data. AI-proof. Owns the data, which can't be replicated. Getting into ESG, climate, and more. 

Valuation not cheap, but one of the top 5 world businesses we've ever seen. 95% recurring revenue. Bought back 5% of shares last year, as they'd underperformed for a couple of years. Yield is 1.33%.

SPGI and MSCI provide data to stock markets, which is a good business: recurring revenue, high-return on capital, consistent and they supply a volume of data. Doesn't like TRI.

(Note the shorter timeframe.)  Has moved sideways, but should do much better over the next year or two. Still a great business in an oligopoly of three.

MSCI continues to innovate. Has gross margins of 75%. Enjoys an oligopoly in financial data, which will always be in demand by asset managers.

Still loves it. Highly necessary products. Licensing fees go up every year. Next leg up for growth would be benchmarks for private equity, and they're working on it. Strength of international markets this year should give them an excellent year.

Solutions and data analytics for the investment management industry. Benchmark indexes, performance measurement, risk management (especially important with all this volatility). Very good numbers today, good growth of almost 10%. Huge growth potential in alternative asset classes. Gross margins down slightly. 95% customer retention rate. Only 3 players in the space. Yield is 1.36%.

It is used by the asset management business and alternative asset managers. It is one of the biggest players in the field which has a limited number of similar companies. Its client retention is very high, close to 90%. A lot of analytics goes into it and they're needed for a better job of managing portfolios on the risk management side. Good growth is there and they can increase their prices. Own it for the long term.       Buy 15  Hold 5  Sell 1

Only 3 companies do the benchmarking, and all money managers need to use them. The index business continues to grow, as does the ETF business. Bought a real estate company that does indexes in that sector. Lots of opportunity to grow. Lots of free cashflow. Minimal capex, so revenue falls right to the bottom line. Yield is 1.1%.

Index grader, risk management around benchmarking, analytics. Only 3 big players. Money managers need to use an index. 80% gross margins, 53% operating margins. Cashflow machine. Going into other asset classes such as real estate. Pricing power has flattened. BlackRock is one of its largest clients, a risk. Yield is 1.2%.

Financial data, benchmark index sector. Likes the subscription nature of the sector, recurring revenue. Trades at a high multiple, and pulls back when market is down. See her Top Picks.

All his Top Picks today are high margin, low capex, run by great management teams, generating lots of free cashflow.

Index business -- fund managers need to use benchmarks, owned by MSCI, for which they pay a licensing fee that goes up every year. 290K indices that they sell. A Top 10, great business in the world, but valuation always expensive. Big dip in April-May, missed earnings expectations. 

A play on global growth, generates lots of free cashflow. Topline and bottom line should grow by double digits for a very long time. Yield is 1.3%.

They raised their dividend by 16%. Their last quarter shot the lights out and they raised dividend. After shares have pulled back 10%, it's now a buying opportunity.