Download - MSCI - What if Greece Leaves the Euro June 2015.

MSCI.COM|PAGE1OF112015MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.

WHATIFGREECELEAVESTHEEURO?JUNE2015

WhatIfGreeceLeavestheEuro?StressTestingtheGreekExitScenarioUsingMSCIRiskManager

CarloAcerbi,ZsoltSimon,VivekSridhar,ThomasVerbraken

June2015

IntroductionAsthefinancialpresswondersaboutapotentialGreekexitfromtheeuro,thispaperexaminesapossibleoutcomeforfinancialmarketsbyemployingaGreekExit(Grexit)stresstestusingMSCIRiskManager.1Thisstresstestscenario,aswellasitsoutcomeonselectedexampleportfoliosintheIllustrationsection,demonstratesthepotentialimpactofaGreekexitonthemarketsoutsideGreecebyusingthesocalledRiskManagerspredictivestresstesttool.2Thescenariodesignisbasedonthefollowingguidelines:

Aminimalsetofcorefactorswaschosentospreadtheshockacrossmarkets,illustratingcauseandeffect,notonlycorrelation.

Apropagationofcorefactorshockswasbasedonaregressionperformedinasimilarturbulentperiod,i.e.,theEuropeanSovereignDebtcrisis,fromDecember2011toMay2012.

Therelativemagnitudeofcorefactorshockswasstudiedviaaprincipalcomponentanalysisofthechosenperiod,withafewadditionalshocksadjustedtoaccountforchangesinfactorexposuretoGreecesinceMay2012.

ThispaperoutlinesourrecommendedGreekExittestscenarioaswellasthereasonsbehindthetestingdesign.

TheGreekExitScenarioTheimplicationsforGreeceofaeurodeparture(referredtoasGrexit)illustratedbythehypotheticalstresstestwouldbedramatic.Inthisillustrativescenario,Greecewouldadoptanewcurrency,whichimmediatelyexperiencesaseveredevaluation.Herearethemajorpotentialramificationsofsuchascenariointhisexample:

AllGreekpublicandprivatedebtorswouldbeunderstressastheystruggletorepayeurodenominateddebtwhiletheirincomestreamsaredenominatedintheNewGreekcurrency,potentiallyleadingtodefaultforvirtuallyalloutstandingbonds.

Greekequitieswouldnotbesparedeither.Foraforeigninvestor,thecompoundeffectofthecurrencydevaluationandadropinequitypricescouldleadtomassivelossesonGreekequity.

1Thisisanillustrativescenario,notMSCIspredictionofhowaGreekexitwouldplayout.2RiskManagerhasseveraltoolsforstresstesting.Thepredictivestresstesttoolismeanttodescribethepropagationoftheshocksofalimitednumberofchosenriskfactorsacrosstherestofthemarkets.



TheeffectontheEuropeanandglobaleconomywouldprobablybelimited,astheGreekeconomyissmallrelativetothetotaleurozone.Globalfinancialmarkets,however,wouldexperienceincreasedturbulence.StocksoffinancialinstitutionswithexposuretoGreekdebtlikelywouldsuffer,aswouldequitymarketsingeneralasaflighttoqualityensued.

InEuropeanbondmarkets,yieldsofperipheralcountries(Italy,Spain,Portugal)wouldincreaseduetofearsofcontagion.TheyieldsofGermanBundsandothercorecountrieslikelywoulddrop,againduetoflighttoqualityeffects.Finally,theeurowoulddepreciateasfundswillflowoutofEurope.

DesigningaGreekExit(Grexit)StressTestTwoDesignChoicesTheproposedMSCIRiskManagerstresstestconsistsoftwomajorparts:GreeceandWorldexGreece.TheeffectonGreeceismodeledwithacompositestresstest3thatconsistsof:

AJumptoDefaultstresstestforallGreekbonds,bothsovereignandcorporate Ageneral80%shockonallGreekstocks

FortheWorldexGreecescenario,weuseapredictivestresstest.Tospecifyapredictivestresstest,weneedtodefinethesetofcorefactorsandshockmagnitudes,togetherwiththeestimationwindowandthereturnhorizonusedfortheregression.IntheEuropeexGreecepredictivestresstest,wechosetoshockthefollowingcorefactors:

Italian5Ygovernmentyield:+200bps Portugal5Ygovernmentyield:+200bps German5Ygovernmentyield4:46bps EurostoxxBanksindex:25%

WeusedtheestimationwindowfromDecember1,2011toMay31,2012,andworkedwithweeklyreturns.Inthenextsectionwemotivatethesechoices.

3SeetheRiskMetricsStressTestingGuideformoreinformationonthecompositestresstest.4Thisshockwouldproducenegativerates,asofJune30,2015.Dependingonhowtheinstrumentismodeled(negativeratesallowedornot),thismayleadtointerestratessetwithaminimumlevel.



RationaleBehindtheDesignChoicesEstimationWindowandReturnHorizonWhenmodelingaGreekexitstresstest,weenvisionedashockofamagnitudethattypicallycorrespondstolargerreturnhorizonswithleadlageffectsoftheorderofdays.Therefore,itwasnotadvisabletousedailyreturnsfortheregressionbutlongerreturnhorizonsinstead.Whenthereturnhorizonistoolarge,ontheotherhand,therearetoofewindependentobservationsintheestimationwindow.Hence,weeklyreturnsareanaturalcompromise.Fortheestimationperiod,wewentbacktoearly2012inthedepthsoftheEuropeanSovereigncrisis(sparkedbyGreecesfinancialproblems).TheGreek5YGovernmentyieldpeakedduringthisperiod,ascanbeseeninExhibit1.TheyieldreacheditshighestvalueattheendofMay2012,whichistheendofourestimationwindow.TheCDSmarketofGreeksovereigndebtfroze(CDSquotesstopped)inMarch2012whenGreecerestructureditsgovernmentdebtheldbyprivatecreditors.DuetothecomovementbetweenthegovernmentyieldandthesovereignCDSspreadandduetothelimitedliquidityoftheCDSduringthecrisisperiod,wedecidedtouseperipheralyieldsinsteadofperipheralCDSspreadsinthedefinitionofthestresstest.Forthestartoftheestimationwindow,welookedattheevolutionofcorrelationsthroughoutthecrisisperiod,asshowninExhibit2.Wewantedrelativelystablecorrelationsthroughouttheestimationwindow.TherewasashiftinmanycorrelationsaroundDecember2011,whichiswhywechosethatpointasthestartoftheestimationwindow.



Exhibit1:Greece5YGovernmentYieldandtheCDSSpreadoftheGreekGovernment

Source:Reuters,CMA,Markit.

0

5000

10000

15000

20000

25000

30000

0

5

10

15

20

25

30

35

CDSS

pread(

bps)

Yield(

%)

GreeceGovernmentPostExchangeBenchmarkZeroCMAGreece(Senior,CR03)CDSMarkitHellenicRep(SNRFOR,CR)CDS



Exhibit2:RollingCorrelationofItalian5YGovernmentYieldwithotherEuropeanYields

Source:Correlationswerecalculatedbasedon5YgovernmentyielddatafromReuters.

CoreFactorSelectionThedefaultofGreekgovernmentandcorporatedebtwouldcauseperipheralyieldstospikeduetofearofcontagion.TheconsequentflighttoqualitymaypotentiallyleadtotighteningGermanyieldsandaweakeningeuro.,ThestockpriceofbanksthatareexposedtoGreekdebtwouldalsobeunderpressure.Theaimofourtestwastomodelthoseeffectswithalimitednumberofcorefactors,whicharethenpropagatedtootherriskfactorswiththepredictivestresstest.WerepresentedtheyieldsofperipheralEUcountriesbytheItalian5YGovernmentyield,whichisingeneralcorrelatedwithotherperipheralcountriesyields(seeExhibit3).ThecorrelationwithSpain,theotherlargeperipheralEUeconomy,wasespeciallyhigh.Tocapturethechangeofthecorecountriesyields,weincludedtheGerman5Yyield.Finally,weshockedtheEurostoxxBanksIndextomodelthenegativereturnofthefinancialstocks.

1

0.5

0

0.5

1 GermanGovernmentDebtBenchmarkZeroCouponSpanishGovernmentDebtBenchmarkZeroCouponFrenchGovernmentBenchmarkZero

GreeceGovernmentPostExchangeBenchmarkZeroHungarianGovernmentDebtBenchmarkZeroCouponIrishGovernmentDebtBenchmarkZeroCouponItalianGovernmentBenchmarkZero

PolishGovernmentDebtBenchmarkZeroCouponPortugueseGovernmentDebtBenchmarkZeroCoupon



Exhibit3:CorrelationBetweenEuropeanYields

Source:Correlationswerecalculatedbasedon5YgovernmentyielddatafromReutersbetween[date]and[date].MagnitudeofShocks:NoEuropeanCatastropheAccordingtoouranalysis,theseverityofcontagionthroughtheeurozoneperipheralcountrieswaslesspronouncedthanin2012whentheprevioussovereigndebtcrisisoccurred.Thereason:Portugal,Italy,SpainandIrelandmadeimportantstepsinthelastthreeyearstobuildmorestableeconomiesandtominimizetheimpactofafuturecrisis.Exhibit4showsthehistoryofthebetaofEuropeangovernmentyieldscomparedtotheGreekgovernmentyield.Notethatin2015theGreekbetashavebeenmuchlowerthantheywereinpreviousyears.ThedirectionoftheshocktotheGermanyieldandtotheEuropeanbankingstocksisderivedfromaprincipalcomponentanalysis(PCA)performedonthecorrelationmatrixofweeklyriskfactorreturnsovertheestimationperiod,asthefirstprincipalcomponentgavethemostplausibledirectionofashock.ThecorrelationbetweenaselectedsetofriskfactorsisshowninExhibit5,whereastheoutcomeoftheprincipalcomponentanalysisisshowninExhibit6.Thecorrelationduringtheestimationwindowwasasweenvisionedinourstresstest,i.e.,iftheItalianyieldincreases,thentheeurowoulddepreciate,equitywoulddrop(especiallythebankingsector),theGermangovernmentyieldwoulddecreaseandperipheralgovernmentyieldswouldincrease.5Thefirstprincipalcomponentshowedthesamedirectionofshocksonthecorefactors.Hence,wemodeledtheGrexitscenariobyusingtheabovementionedestimationwindowfromDecember1,2011toMay31,2012andappliedashockinthedirectionofthefirstprincipalcomponent.WesettheItalian5Ygovernmentyieldshockat+200bps,andshockedtheGerman5Ygovernmentyieldaccordingtothedirectionofthefirstprincipalcomponent.AstheItalianyieldincreasedby200bpsoverthelastthreemonthsoftheestimationperiod,wethinkthatthisshocksizeisreasonable.FortheEurostoxxBanksindex,wedidnottakethemagnitudeassuggestedbythePCA,butwescaledtheshockdown,basedonthecurrentlylowercorrelationwiththeItalian5Yyield.Thereason:backin2012,banksweremuchmoreexposedtoGreekgovernmentdebt,whiletodaygovernmentshavetakenovermuchofthisdebt.

5Thiswastheresultofthespecificchoicewemadefortheriskfactorsandtestperiod.Differentchoicesmayyieldmateriallydifferentresults.

GermanGovt5Y

SpanishGovt5Y

FrenchGovt5Y

GreeceGovt5Y

HungarianGovt5Y

IrishGovt5Y

ItalianGovt5Y

PolishGovt5Y

PortugueseGovt5Y

GermanGovt5Y 1.00SpanishGovt5Y 0.03 1.00FrenchGovt5Y 0.24 0.47 1.00GreeceGovt5Y 0.24 0.35 0.12 1.00HungarianGovt5Y 0.25 0.24 0.31 0.20 1.00IrishGovt5Y 0.11 0.44 0.19 0.40 0.18 1.00ItalianGovt5Y 0.21 0.69 0.41 0.21 0.26 0.40 1.00PolishGovt5Y 0.13 0.45 0.30 0.24 0.45 0.32 0.54 1.00PortugueseGovt5Y 0.18 0.22 0.01 0.07 0.13 0.09 0.12 0.00 1.00



Exhibit4:Rollingbetaof5YEuropeanGovernmentYieldstothe5YGreekGovernmentYield

Source:betaswerecalculatedbasedon5YgovernmentyielddatafromReuters.Exhibit5:CorrelationBetweenSelectRiskFactors

Exhibit6:PrincipalComponentAnalysis.

10.5

0

0.5

1Jun1

1

Dec1

1

Jul1

2

Jan1

3

Aug1

3

Feb1

4

Sep1

4

Apr1

5

GermanGovt5Y SpanishGovt5Y FrenchGovt5YGreekGovt5Y HungarianGovt5Y IrishGovt5Y

RiskFactor Vol CorrelationEuro 1.26 1.00 0.50 0.57 0.38 0.36 0.17 0.38 0.04EUROSTOXX50Index 2.59 0.50 1.00 0.86 0.63 0.32 0.26 0.55 0.07EUROSTOXXBanksIndex 5.59 0.57 0.86 1.00 0.60 0.42 0.18 0.67 0.06DEMGovt60M 0.10 0.38 0.63 0.60 1.00 0.03 0.24 0.21 0.18ESPGovt60M 0.34 0.36 0.32 0.42 0.03 1.00 0.35 0.69 0.22GRDGovt60M 1.85 0.17 0.26 0.18 0.24 0.35 1.00 0.21 0.07ITLGovt60M 0.35 0.38 0.55 0.67 0.21 0.69 0.21 1.00 0.12PTEGovt60M 1.79 0.04 0.07 0.06 0.18 0.22 0.07 0.12 1.00

RiskFactor PC1 PC2 PC3 PC4 PC5 PC6 PC7 PC8Euro 0.36 0.07 0.13 0.03 0.90 0.02 0.18 0.07EUROSTOXX50Index 0.46 0.20 0.03 0.16 0.21 0.55 0.23 0.56EUROSTOXXBanksIndex 0.48 0.13 0.19 0.10 0.16 0.23 0.07 0.79DEMGovt60M 0.33 0.47 0.25 0.33 0.09 0.69 0.11 0.08ESPGovt60M 0.32 0.53 0.06 0.34 0.02 0.29 0.64 0.05GRDGovt60M 0.21 0.18 0.90 0.18 0.02 0.17 0.19 0.10ITLGovt60M 0.41 0.30 0.26 0.17 0.33 0.23 0.67 0.18PTEGovt60M 0.00 0.56 0.05 0.82 0.07 0.01 0.02 0.02

PCvol 1.89 1.22 0.96 0.88 0.78 0.53 0.47 0.33PercExpl 45 19 11 10 8 4 3 1



AsecondimportantobservationisthatthePortuguese5Yyieldwasnotshockedinthefirstprincipalcomponent,mostlikelyduetoidiosyncraticeventsaffectingPortugalduringtheestimationwindow.InordertoproperlycapturethepotentialcontagioneffectonPortugal,weaddPortugal5Ygovernmentyieldtooasacorefactorandshockitby200bps.Insummary,weproposedthefollowingshocksinourtest:

Italian5Ygovernmentyield:+200bps Portugal5Ygovernmentyield:+200bps German5Ygovernmentyield:46bps EurostoxxBanksindex:25%

Inthenextsectionweapplythestresstesttotwosampleportfolios.

IllustrationToillustratethisproposedstresstest,weappliedourGreekexitscenariotoasampleportfolioreplicatingtheMSCIACWIIndex100%andtoasampleportfolioconsistingofgovernmentbondswithamaturityof10years.ThepredictedreturnaswellasthestandarderrorarebrokendownbycountryandareshowninExhibit7.Fortheequityindexbasedportfolio,weseeanegativereturnforallcountries,wherebytheseverityofthedropdependsontheproximitytoGreece,e.g.,Spain(aperipheralcountry)andAustria(whoselargestcompaniesarebanks)experiencerelativelylargedrops.AlsonotethattheGreekequitydrops80%inpriceand,sinceitisnotpartofthepredictivestresstest,thereisnostandarderrorforGreece.Whilethegovernmentbondsinperipheralcountrieswouldexperienceadropinvalueinthisillustration,corecountries,suchasGermanyandtheNetherlands,wouldgainvalue,aswellasothercountriesoutsidetheeurozone(e.g.,theU.S.,GreatBritain),whichgenerallybenefitfromflighttoqualityeffects.Greeceitselfwouldexperiencedefaultacrosstheboard.NotetheimplicationsforPortuguese,ItalianandCypriotdebt:

ThepricedeclineinthePortuguesebondismuchlessthanthepricedeclineintheItalianbond,eventhoughboth5Ygovernmentyieldshavebeenshockedwith200bps.Thisismainlycausedbythedifferentbetaoftherespective10Ygovernmentyieldstothe5Yyield.ForItaly,thebetaofthe10Yyieldtothe5Yyieldis0.70,whereasforPortugalthisisonly0.33.Asaresult,thePortuguese10yearbondsuffersless.

ThereisanextremepredictedreturnwithlargestandarderrorforCypriotdebt.ThereasonisthatCypruswassufferingitsownfinancialcrisisin2012andweshouldnotextrapolatefromthatperiod.Instead,forportfolioscontainingCypriotassets,wemaywanttoaddanadditionalcorefactorforCyprusorstressthoseassetsinadifferentway.

Thesetwoexamplesillustratethatoneshouldexercisecarewithstresstests,especiallywhenusingpredictivestresstesting.Itmaybenecessarytocustomizethestresstestforindividualusecases.



Exhibit7:StressTestResultsforMSCIACWIandaSampleGovernmentBondPortfolio.

ConclusionAstheGreekdebtcrisisdrivesapotentialexitfromtheeuro,weproposeaRiskManagerstresstesttomodeltheimpactofaGreekexitscenarioonfinancialassets.GiventhedifferentscenarioimplicationsonGreeceversustheWorldexGreece,wedesignedtwodifferentstresstests.OurtestsassumesthatinGreece,equitywouldsufferheavily,andvirtuallyallbondsdefault.TheimpactonEuropeandtheworldwouldbecausedbyfearofcontagionandasubsequentflighttoquality.Theseeffectsledtowideningperipheralyields,tighteningcorecountryyields,aweakeningeuroandadownwardpressureonequity,inparticularfinancialstocks.However,thetestresultsindicatedthattheimpactwouldnotbedevastatingfortheeurozone.

MSCIAWCI(selectcountries) BondportfolioCountry deltaPV deltaPVSE Country deltaPV deltaPVSEAT 20.9% 1.4% AT 0.5% 0.7%AU 2.3% 1.1% BE 2.5% 0.8%BE 9.9% 1.0% CY 22.0% 17.9%CZ 9.2% 1.2% DE 4.9% 0.2%DE 10.2% 1.1% ES 7.4% 1.0%DK 7.7% 1.2% FI 3.8% 0.3%ES 14.0% 0.9% FR 0.3% 0.6%FI 11.2% 1.6% GB 5.3% 0.5%FR 10.7% 1.0% GR 20.4%GB 6.6% 1.0% IE 2.3% 0.8%GR 80.0% IT 11.5% 0.5%HU 18.4% 2.4% JP 7.2% 0.9%IE 7.9% 1.1% LT 3.6% 0.7%IT 18.6% 0.8% LU 2.9% 0.2%JP 0.5% 0.9% LV 1.3% 0.7%LU 7.6% 0.9% MT 0.1% 0.2%MT 3.5% 1.8% NL 4.8% 0.4%NL 6.8% 0.9% PT 5.7% 1.4%NO 7.8% 1.3% SI 4.5% 1.0%NZ 2.1% 1.0% SK 0.3% 0.7%PH 6.1% 1.6% US 7.7% 0.7%PL 11.0% 1.3%PT 11.4% 1.7%SE 11.9% 1.5%US 2.6% 1.0%TotalACWI 4.1% 0.9%

AMERICASAmericas 18885884567*Atlanta +14045513212Boston +16175320920Chicago +13126750545Monterrey +528112534020NewYork +12128043901SanFrancisco +14158368800SaoPaulo +551137061360Toronto +14166281007EUROPE,MIDDLEEAST&AFRICACapeTown +27216730100Frankfurt +496913385900Geneva +41228179777London +442076182222Milan +390258490415Paris 0800915917*ASIAPACIFICChinaNorth 108008521032*ChinaSouth 108001521032*HongKong +85228449333Mumbai +912267849160Seoul 0079885213392*Singapore 8008523749*Sydney +61290339333Taipei 00801127513*Thailand 0018001562077181*Tokyo +81352901555

ABOUTMSCIFormorethan40years,MSCIsresearchbasedindexesandanalyticshavehelpedtheworldsleadinginvestorsbuildandmanagebetterportfolios.Clientsrelyonourofferingsfordeeperinsightsintothedriversofperformanceandriskintheirportfolios,broadassetclasscoverageandinnovativeresearch.Ourlineofproductsandservicesincludesindexes,analyticalmodels,data,realestatebenchmarksandESGresearch.MSCIserves98ofthetop100largestmoneymanagers,accordingtothemostrecentP&Iranking.Formoreinformation,visitusatwww.msci.com.

*=tollfree

[email protected]

MSCI.COM|PAGE11OF112015MSCIInc.Allrightsreserved.


NOTICEANDDISCLAIMERThisdocumentandalloftheinformationcontainedinit,includingwithoutlimitationalltext,data,graphs,charts(collectively,theInformation)isthepropertyofMSCIInc.oritssubsidiaries(collectively,MSCI),orMSCIslicensors,directorindirectsuppliersoranythirdpartyinvolvedinmakingorcompilinganyInformation(collectively,withMSCI,theInformationProviders)andisprovidedforinformationalpurposesonly.TheInformationmaynotbemodified,reverseengineered,reproducedorredisseminatedinwholeorinpartwithoutpriorwrittenpermissionfromMSCI.TheInformationmaynotbeusedtocreatederivativeworksortoverifyorcorrectotherdataorinformation.Forexample(butwithoutlimitation),theInformationmaynotbeusedtocreateindexes,databases,riskmodels,analytics,software,orinconnectionwiththeissuing,offering,sponsoring,managingormarketingofanysecurities,portfolios,financialproductsorotherinvestmentvehiclesutilizingorbasedon,linkedto,trackingorotherwisederivedfromtheInformationoranyotherMSCIdata,information,productsorservices.TheuseroftheInformationassumestheentireriskofanyuseitmaymakeorpermittobemadeoftheInformation.NONEOFTHEINFORMATIONPROVIDERSMAKESANYEXPRESSORIMPLIEDWARRANTIESORREPRESENTATIONSWITHRESPECTTOTHEINFORMATION(ORTHERESULTSTOBEOBTAINEDBYTHEUSETHEREOF),ANDTOTHEMAXIMUMEXTENTPERMITTEDBYAPPLICABLELAW,EACHINFORMATIONPROVIDEREXPRESSLYDISCLAIMSALLIMPLIEDWARRANTIES(INCLUDING,WITHOUTLIMITATION,ANYIMPLIEDWARRANTIESOFORIGINALITY,ACCURACY,TIMELINESS,NONINFRINGEMENT,COMPLETENESS,MERCHANTABILITYANDFITNESSFORAPARTICULARPURPOSE)WITHRESPECTTOANYOFTHEINFORMATION.Withoutlimitinganyoftheforegoingandtothemaximumextentpermittedbyapplicablelaw,innoeventshallanyInformationProviderhaveanyliabilityregardinganyoftheInformationforanydirect,indirect,special,punitive,consequential(includinglostprofits)oranyotherdamagesevenifnotifiedofthepossibilityofsuchdamages.Theforegoingshallnotexcludeorlimitanyliabilitythatmaynotbyapplicablelawbeexcludedorlimited,includingwithoutlimitation(asapplicable),anyliabilityfordeathorpersonalinjurytotheextentthatsuchinjuryresultsfromthenegligenceorwillfuldefaultofitself,itsservants,agentsorsubcontractors.Informationcontaininganyhistoricalinformation,dataoranalysisshouldnotbetakenasanindicationorguaranteeofanyfutureperformance,analysis,forecastorprediction.Pastperformancedoesnotguaranteefutureresults.TheInformationshouldnotbereliedonandisnotasubstitutefortheskill,judgmentandexperienceoftheuser,itsmanagement,employees,advisorsand/orclientswhenmakinginvestmentandotherbusinessdecisions.AllInformationisimpersonalandnottailoredtotheneedsofanyperson,entityorgroupofpersons.NoneoftheInformationconstitutesanoffertosell(orasolicitationofanoffertobuy),anysecurity,financialproductorotherinvestmentvehicleoranytradingstrategy.Itisnotpossibletoinvestdirectlyinanindex.Exposuretoanassetclassortradingstrategyorothercategoryrepresentedbyanindexisonlyavailablethroughthirdpartyinvestableinstruments(ifany)basedonthatindex.MSCIdoesnotissue,sponsor,endorse,market,offer,revieworotherwiseexpressanyopinionregardinganyfund,ETF,derivativeorothersecurity,investment,financialproductortradingstrategythatisbasedon,linkedtoorseekstoprovideaninvestmentreturnrelatedtotheperformanceofanyMSCIindex(collectively,IndexLinkedInvestments).MSCImakesnoassurancethatanyIndexLinkedInvestmentswillaccuratelytrackindexperformanceorprovidepositiveinvestmentreturns.MSCIInc.isnotaninvestmentadviserorfiduciaryandMSCImakesnorepresentationregardingtheadvisabilityofinvestinginanyIndexLinkedInvestments.Indexreturnsdonotrepresenttheresultsofactualtradingofinvestibleassets/securities.MSCImaintainsandcalculatesindexes,butdoesnotmanageactualassets.IndexreturnsdonotreflectpaymentofanysaleschargesorfeesaninvestormaypaytopurchasethesecuritiesunderlyingtheindexorIndexLinkedInvestments.TheimpositionofthesefeesandchargeswouldcausetheperformanceofanIndexLinkedInvestmenttobedifferentthantheMSCIindexperformance.TheInformationmaycontainbacktesteddata.Backtestedperformanceisnotactualperformance,butishypothetical.Therearefrequentlymaterialdifferencesbetweenbacktestedperformanceresultsandactualresultssubsequentlyachievedbyanyinvestmentstrategy.ConstituentsofMSCIequityindexesarelistedcompanies,whichareincludedinorexcludedfromtheindexesaccordingtotheapplicationoftherelevantindexmethodologies.Accordingly,constituentsinMSCIequityindexesmayincludeMSCIInc.,clientsofMSCIorsupplierstoMSCI.InclusionofasecuritywithinanMSCIindexisnotarecommendationbyMSCItobuy,sell,orholdsuchsecurity,norisitconsideredtobeinvestmentadvice.DataandinformationproducedbyvariousaffiliatesofMSCIInc.,includingMSCIESGResearchInc.andBarraLLC,maybeusedincalculatingcertainMSCIindexes.Moreinformationcanbefoundintherelevantindexmethodologiesonwww.msci.com.MSCIreceivescompensationinconnectionwithlicensingitsindexestothirdparties.MSCIInc.srevenueincludesfeesbasedonassetsinIndexLinkedInvestments.InformationcanbefoundinMSCIInc.scompanyfilingsontheInvestorRelationssectionofwww.msci.com.MSCIESGResearchInc.isaRegisteredInvestmentAdviserundertheInvestmentAdvisersActof1940andasubsidiaryofMSCIInc.ExceptwithrespecttoanyapplicableproductsorservicesfromMSCIESGResearch,neitherMSCInoranyofitsproductsorservicesrecommends,endorses,approvesorotherwiseexpressesanyopinionregardinganyissuer,securities,financialproductsorinstrumentsortradingstrategiesandMSCIsproductsorservicesarenotintendedtoconstituteinvestmentadviceorarecommendationtomake(orrefrainfrommaking)anykindofinvestmentdecisionandmaynotbereliedonassuch.IssuersmentionedorincludedinanyMSCIESGResearchmaterialsmayincludeMSCIInc.,clientsofMSCIorsupplierstoMSCI,andmayalsopurchaseresearchorotherproductsorservicesfromMSCIESGResearch.MSCIESGResearchmaterials,includingmaterialsutilizedinanyMSCIESGIndexesorotherproducts,havenotbeensubmittedto,norreceivedapprovalfrom,theUnitedStatesSecuritiesandExchangeCommissionoranyotherregulatorybody.Anyuseoforaccesstoproducts,servicesorinformationofMSCIrequiresalicensefromMSCI.MSCI,Barra,RiskMetrics,IPD,FEA,InvestorForce,andotherMSCIbrandsandproductnamesarethetrademarks,servicemarks,orregisteredtrademarksofMSCIoritssubsidiariesintheUnitedStatesandotherjurisdictions.TheGlobalIndustryClassificationStandard(GICS)wasdevelopedbyandistheexclusivepropertyofMSCIandStandard&Poors.GlobalIndustryClassificationStandard(GICS)isaservicemarkofMSCIandStandard&Poors.