$3.7 Trillion in A.U.M. Tracks EAFE and E.M. Indexes, as First-ever Index Options Launch

On Tuesday April 21 CBOE launched its first-ever trading in cash-settled options on two MSCI indexes – the MSCI Emerging Markets Index (MXEF) and the MSCI EAFE Index (MXEA). Options on the MSCI Emerging Markets Index and the MSCI EAFE Index are designed to enable investors to efficiently hedge and manage their non-U.S. equity portfolio exposures, to diversify their portfolios, or to generate added income.

$TRILLIONS IN ASSETS UNDER MANAGEMENT

In mid-2014 the combined assets under management (AUM) that tracked the two indexes were $3.7 trillion, making the indexes tow of the most popular gauges of worldwide equity exposure. A-AUM EAFE  EM
MORE THAN 44 YEARS OF PRICE HISTORY

The price history of the MSCI EAFE Index begins on December 31, 1969, when its base price was set to 100. Its price rose to 1839.34 at the end of March 2015.

The price history of the MSCI Emerging Markets Index begins on December 31, 1987, when its base price was set to 100.

One can look at both the Total Return indexes (with reinvested dividends) and the price return indexes (which do not include reinvested dividends) to try to gain an idea of how the indexes might fit within an asset allocation.  B-Indexes line charts

The historic volatility of the MSCI Index had big spikes above 60 in the fall of 1987 and 2008.

CORRELATIONS AND DIVERSIFICATION

Investors often look to global index products, options, and volatility products to try to gain an idea of ways in which their portfolios can be better diversified, particularly in light of the fact that the correlations among many “traditional assets” have risen over the past decade.  The correlation of the MSCI EAFE and VXEFA indexes in the table below was -0.69.

C-correlations
BIG PRICE MOVES IN OPPOSITE DIRECTIONS

In the first week of May 2010, MSCI EAFE fell 10.3%, and VXEFA Index rose 102.9%. Futures and options are available on the VIX Index and on the CBOE Emerging Markets ETF Volatility Index (VXEEM). D-Big price moves
CONTRACT SPECS AND BIG CONTRACT SIZES

The table and chart below present a comparison of contract specifications and contract sizes. Many institutional customers have told me that they prefer the features of the new index options – cash-settlement, European-style exercise, and a large contract size that is about 25 times as big as the size of the related ETF options. The new contracts are designed to have the potential to be efficient tools for managing global portfolio exposure. 5 MSCI specs April 21 version

For more information on these new global tools, please visit www.cboe.com/MSCI