S&P Global and MSCI shares: two titans of the financial market News ad

In business analysis, searching for key competitive advantages helps identify firms that can maintain their market position over time. Competitive advantage can come from many sources. This includes things like network effects, where the value of a service to users increases as the number of users increases. Social media apps are a great example of this. The more people use social networks like Facebook, Instagram or X, the more information they can get.

This makes these platforms more valuable to users than new social networks that are still growing their user base. Over time, companies that control a huge market share become the standard. Their adoption and use by the masses gives new users less reason to try a growing competitor.

The competitive advantage of network effects extends to the two financial firms discussed below. Their massive adoption by capital market players gives them advantages that are difficult for competitors to overcome.

Financial markets is the middle name of S&P Global

S&P Global today

$514.46 +3.09 (+0.60%)

(As of 11/22/2024 ET)

52 week range

$407.69

▼

$533.29

Dividend yield

0.71%

P/E ratio

45.41

Target price

$571.31

The first company is S&P Global. New York Stock Exchange: SPGI. Readers rightfully understand that this company is worth over $150 billion and is the creator of the S&P 500 Index. This index gives the company an incredible competitive advantage based on network effects. The S&P 500 Index serves as a universal benchmark against which people and institutions measure stock market and investment performance. Investment professionals compare the performance of a U.S. stock portfolio to that of the S&P 500 index, like the sun rising in the east.

Perhaps not the best indication of its importance is the fact that the S&P 500 and “the market” are often used interchangeably with each other. The sheer number of people using the words “S&P 500” is a huge source of free marketing for S&P Global that can’t be overstated. S&P Global receives fees from companies that create investment products linked to its indices. The five largest mutual funds, or ETFs, that track the S&P 500 index have approximately $3.5 trillion in assets under management. S&P Global also owns the rights to perhaps the second most famous index in the world, the Dow Jones Industrial Average.

S&P Global also controls a huge market share when it comes to the bond ratings industry. In fact, the company generates about three times more revenue from this part of the business compared to the index business. Here the company evaluates the creditworthiness of businesses and governments willing to issue debt for financing. Their ratings have a significant impact on how financial markets value these organizations.

The industry is essentially a three-horse race between S&P Global and Moody’s. New York Stock Exchange: MKOand Fitch Ratings. These three control almost the entire market in both the US and Europe. The S&P is generally considered to have the largest market share of the three.

MSCI: Global Index Wizard

MSCI today

$589.57 +8.23 (+1.42%)

(As of 11/22/2024 ET)

52 week range

$439.95

▼

$631.70

Dividend yield

1.09%

P/E ratio

38.71

Target price

$631.83

Next comes MSCI New York Stock Exchange: MSCI. Although the $45 billion company is generally less well known than S&P, it is another important player in the capital markets. MSCI also has an extensive network of market indices such as the S&P. This represents a significantly larger portion of the company’s total revenue – more than 50%. Investors use MSCI indexes more often when measuring global stock market performance than in the United States. Probably the most well-known index that the company monitors is the MSCI All Country World Index, often referred to as the ACWI. Investors use this index to gauge the performance of global stocks. It covers 85% of the world’s reserves.

Like the S&P 500 with U.S. equities, the MSCI indices are an invaluable resource when developing international equity products and assessing their performance. This creates similar network effects. This becomes clear when you consider that more than $16 trillion in assets is the benchmark for MSCI’s equity indexes. MSCI has also established itself as a leading provider of environmental, social and governance data and analytics for investors that consider these factors.

Two indicators indicate MSCI’s dominance. Its forward price-to-earnings ratio is 35 times, higher than 94% of U.S. financial services companies. This shows that investors will pay more for every dollar of the company’s future earnings because of its advantages. Its operating margin exceeds 80% of U.S. financial services stocks. This shows that it is better able to withstand rising costs than others and remains highly profitable.

You’ll want to hear this before you consider S&P Global.

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