Frontier markets are those markets that are considered by MSCI to be among the smallest, least mature and least liquid. Additionally, the emerging markets included in the Underlying Index are those markets selected from the lower size spectrum of emerging markets. As of December 22, 2020, the Underlying Index consisted of securities in the following frontier markets: Bahrain, Bangladesh, Jordan, Kazakhstan, Kenya, Kuwait, Mauritius, Morocco, Nigeria, Oman, Romania, Sri Lanka and Vietnam. At the first quarterly rebalance in 2021, securities in the following emerging market countries are eligible for inclusion in the Underlying Index: Pakistan, Philippines, Peru, Colombia, Argentina and Egypt.
The Underlying Index transitions from the former underlying index’s country exposures to the target construction in approximately 5% increments at each of the quarterly rebalances during 2021. The Underlying Index also maintains a freeze on the allocations to Nigeria and Bangladesh at their respective weights in the former underlying index as of November 18, 2020.
MSCI first identifies countries within the MSCI Frontier Markets IMI and the MSCI Emerging Markets IMI. Then a separate universe of eligible securities is independently derived within each of the (1) MSCI Frontier Markets IMI and (2) MSCI Emerging Markets IMI.
To avoid excessive country concentration, the Underlying Index limits the maximum cumulative weight of the two largest frontier market countries to 40% and limits the weight of any individual emerging market country to 5%.
The target cumulative free float-adjusted market capitalization weights of 80% and 20%, respectively, are assigned to frontier market and emerging market constituents in the Underlying Index. A capping methodology is applied that limits the weight of any single “group entity” (constituents that MSCI determines have a control relationship) to a maximum of 25% of the Underlying Index weight, and the sum of all group entities with a weight above 5% to an aggregate of 25% of the Underlying Index weight. MSCI uses the concept of “group entities” for the concentration limits of the capping methodologies in the Underlying Index. A group entity is a group of companies that operate as an