MSCI World November QCIR – Final Predictions

MSCI randomly uses one of the last 10 business days of October as its pricing date in order to compute the market capitalization of its universe and decide how to rebalance its market capitalization indices. 

MSCI will announce the rebalanced index on November 14th and we expect the passive fund to rebalance their portfolio during the November 30th trade date.

 

Highlights:

The highlights of this review are:

  • AU: Highest opportunities (high probability and high ADV impacts (~10d)) with:
    • carsales.com Ltd (ASX:CAR): SMALL -> MID
    • Lendlease Group (ASX:LLC): MID -> SMALL
  • EU: High incertitudes for deletions. 
    • MID -> SMALL:
      • Telefónica Deutschland Holding AG (DB:O2D, High) 
      • Johnson Matthey Plc (LSE:JMAT, Medium), 
      • Valeo SE AG (ENXTPA: FR, Medium) 
    • Watch
      • Wendel (ENXTPA: MF), Worldline SA (ENXTPA:WLN) as possible deletions
      • Banco de Sabadell S.A (BME:SAB), Trelleborg AB (OM/TREL B), B&M European Value Retail S.A (LSE: BME) as possible contingency additions
  • US:
    • High Convictions:
      • Adds: AppLovin Corporation (Nasdaq:APP), Vertiv Holdings Co (NYSE:VRT)
      • Dels: Mohawk Industries Inc. (NYSE:MOH), Sealed Air Corporation (NYSE:SEE), Clarivate Plc (Nasdaq:CLVT), Wolfspeed, Inc. (NYSE:WOLF), Chewy, Inc. (NYSE:CHWY)
    • Medium Conviction:
      • Add: Celsius Holdings, Inc. (Nasdaq:CELH)
      • Del: Sensata Technologies Holding plc (NYSE:ST)
    • Low Conviction:
      • Adds: RenaissanceRe Holdings Ltd. (NYSE:RNR), Flex Ltd. (Nasdaq:FLEX), Sarepta Therapeutics, Inc. (Nasdaq:SRPT)
      • Dels: Healthcare Realty Trust Incorporated (NYSE:HR), Invesco Ltd. (NYSE:INVZ), Generac Holdings Inc. (NYSE:GNRC), SolarEdge Technologies, Inc. (Nasdaq:SEDG)

 

AUSTRALIA

We think that carsales.com Ltd (ASX:CAR) will replace Lendlease Group (ASX:LLC). This transition is important as our model has forecasted it for all pricing dates in the MSCI pricing window. Additionally, our ADV impact are quite high and are estimated to be more than 2 weeks.

In the previous review, Lendlease was assigned to the MID segment during Step 4 (i.e. below MID cutoff but above MID lower cutoff) which means that it was already close to being demoted from Mid to Small. Additionally, the performance of the stock between the last pricing date and October 18th, 2023 (first date of the pricing window) has been negative (<-20%) and its market rank moved from 76 to 87 (-11). 

Conversely,  carsales.com performed well during the same period (~12%) and its rank improved from 52 to 40 (+12). As a consequence, carsales.com was added to the MID segment in Step 5 as the highest market capitalization in the current SMALL segment. The second highest SMALL market capitalization in AU is ASX: SVW at ~$6.2B (or -11% vs ASX:CAR)

 

EUROPE

The European market has been very interesting to follow during this rebalance as many names were close to different MSCI cutoffs and their predictions were different based on the pricing date.

However, Leonardo S.p.a. (BIT:LDO) has consistently been a promotion from SMALL to MID. It’s +15% c. price performance helped to comfortably pass the $7.5B Standard Upper cutoff during step 3 (it was very close to the threshold at the previous review).

The other high conviction transition we predict is the demotion of Telefónica Deutschland Holding AG (DB:O2D), which we think has still been assigned to the MID segment but failed the final float market cap cutoff by ~5%.

Finally to give more information on the low conviction / watchlist predicted deleted, please see below the deleted forecast pricing date map:

  • Valeo: all days except 24/10
  • Johnson Mattew: from 18/10 to 24/10 (i.e. on the first week)
  • Wendel (pre-pricing window and 26/10-27/10
  • Wordline (25/10 and 26/10)

 

USA

Following MSCI assignment steps, we expect the current SMALL companies Vertiv Holdings Co (NYSE:VRT, +54% perf), AppLovin Corporation (Nasdaq:APP, +40% perf) and Celsius Holdings, Inc. (Nasdaq:CELH, +20% perf) to be added during the MID Step 3 thanks to their company market capitalization being higher than the US Standard Upper Cutoff (estimated at $13b c.).

Moving on to step 4, we expect current MID Chewy (NYSE:CHWY, -50% perf) to still barely be allocated to MID but to fail the final float market capitalization cutoff by 20%.

Moving on to step 5, we expect, , Flex Ltd. (Nasdaq:FLEX,~0 rank gain), RenaissanceRe Holdings Ltd. (NYSE:RNR, +72 rank gain), Sarepta Therapeutics, Inc. (Nasdaq:SRPT, +80 rank gain) to be added during MID Step 5 as the highest market capitalization among the remaining current SMALL members. 

The current MSCI Eligible Number of Companies (NOC) is around 630 so we don’t expect the other predicted deletions to be assigned during the MID assigned steps due to their ranking (ranks and performance as of first pricing date):

  • ~#850 (-110 vs previous review) US: Mohawk Industries Inc. (NYSE:MOH, -25% perf),
  • ~#910 (-130) US: Clarivate Plc (Nasdaq:CLVT, -30% perf),
  • ~#950 (-273) US: Wolfspeed, Inc. (NYSE:WOLF, -47% perf), 
  • ~#975 (-176) US: Sealed Air Corporation (NYSE:SEE, -33% perf).