MSCI has used its ESG and thematic research capabilities and the use of overlays to carve its corner in the structured products market where its flagship benchmark, the MSCI World Index, is not its most featured index.
Current hot topics in thematic investing include artificial intelligence (AI) and European sovereignty, as well as the defence sector, economic exposure strategies and smart defence against tariffs, Stephane Mattatia, global head of thematic indexes and derivatives licensing at MSCI, told SRP.
Thematic investing remains a complementary part of an overall investment strategy, given the continuous rotation nature of investment themes
“Geopolitical-driven investment themes are also gaining traction among investors with some product providers already enquiring about domestic company focus and tariff-related economic indexes,” he said.
“Thematic indexes are becoming more popular because they offer quick adaptation to market needs and instead of replacing market cap indexes, they offer complementary strategies.”
Top MSCI indices – live products and outstanding volumes*
| Index | Issuance | Sales volume (US$m) |
| MSCI World Climate Change ESG Select 4.5% Decrement EUR Index | 3,750 | 7,335 |
| MSCI EAFE | 564 | 2,025 |
| MSCI EMU SRI Select 30 Decrement 4.0% Index | 526 | 960 |
| MSCI Germany Climate Change ESG Select 4% Index | 365 | 665 |
| MSCI World SRI Sustainable Select 3.5% Decrement Index | 388 | 635 |
| MSCI World 4.5% Decrement Index | 516 | 605 |
*As of 30 June 2025
Source: SRP
Advanced data analysis such as big data or large language models have enabled many of these new thematic indexes, which also have a shorter lifecycle compared to traditional approaches. Over the last few years some themes have driven market activity as we saw in 2022 with the Metaverse or in 2023 with energy stocks. Last year was about AI and luxury goods and so far, for 2025, potential upcoming winners include gold, defence stocks, and private equity.
“Thematic investing remains a complementary part of an overall investment strategy, given the continuous rotation nature of investment themes,” said Mattatia. “Market cap indexes will continue to dominate but there is clearly increasing investor appetite for specialised, targeted investments.
“Providers that can deliver responsive indices that capture emerging market opportunities will have an edge in the market.”
Overlays
Looking at the use of index overlays to optimise underlyings for structured products, Mattatia notes a change in dynamics over the last few years.
“Previously the focus was on introducing new strategies and indices with overlays (risk control, decrement) whereas the current trend is on adding overlays to traditional highly liquid market cap indices,” he said.
“The use of overlay types such as decrement strategies and intraday risk control can provide more flexible investment options and address market uncertainty.”
This kind of feature can also be used to simplify complex investment strategies and help investors understand risk data.
“With increasing market volatility there is room for overlays and defensive strategies as investors have a desire for more predictable returns and need diversification and risk mitigation,” said Mattatia.
“Overlays allow investors to calibrate their risk appetite, adjust potential returns and manage portfolio volatility.”
The increasing flexibility around index construction and higher quality of data to build robust strategies is seen as tailwind driver.
“There is scope for growth around thematic investing and the use of overlays which bodes well with structured products around the use of protection features and providing access to new investing opportunities,” he said.
Decrement has shown its value and remains popular in some European markets because “they work well for issuers” and “can be used to calibrate risk appetite and allows banks to be more aggressive with pricing and shift the balance between index rise probability and coupon”.
Decrement is also a flexible overlay that is now applied across different index types including ESG, growth and thematic.
On the debate about the use of percentage vs point decrement, Mattatia notes that percentage better represents market behaviour in significant moves while point decrement is more suitable for small dividend fluctuations. The ideal approach would combine both but would be too complex.
One area of focus at MSCI is risk control and intraday risk control innovations which are gaining traction in some markets like the US as a complement to the activity seen around decrement strategies in Europe.
“Risk control has also gained investor attention due to higher market volatility,” said Mattatia. “The effectiveness of some of the innovations we see in the market such as the intraday risk control is still being evaluated - some sophisticated indexes rebalance up to 13 times daily, and there is some scepticism about the cost-benefit ratio.”
Mattatia also noted growing interest in simplifying complex investment strategies and an increasing convergence between traditional market cap indices and overlay strategies with core benchmarks like the MSCI World now offering decrement and risk control versions.
ESG, climate indexes
The index provider has been a market leader in the ESG and climate space serving institutional and retail markets for a number of years.
“The range of MSCI ESG and climate indexes has expanded during this time, taking in more thematic approaches that help investors prioritise the likes of climate adaptation, sustainability innovation, ocean sustainability, climate change mitigation and companies helping control climate consequences,” said Mattatia.
Before 2022, much of the market was focused solely on ESG ratings and climate stocks, but now investors want exposure to emerging markets and companies helping with fluid control, heating/cooling installations, and climate resilience technologies.
“We see sustainability as a long-term phenomenon that will adapt to geopolitical and economic changes and will also rotate its focus on different sustainability aspects as investors priorities evolve,” Mattatia said.
This article was first published in the SRP Index Report 2025: ESG, Thematics & Decrement Indices.
Click in the link to download the first two chapters of the report.
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