Beyond market classification decisions, stocks routinely rise or fall when index providers announce even small adjustments to their most widely-followed gauges. The decisions are so important that some brokerages, including Societe Generale SA, have analysts dedicated to helping traders predict when securities will be added, deleted or see their index weightings change.

The MSCI All-Country World Index rose 0.3 percent at 7:10 a.m. in New York, extending this year’s gain to 2.5 percent.

Smart Beta

Index providers are also starting to encroach on the traditional turf of active managers with the rise of “smart beta,” an investing style that uses gauges built around factors other than market capitalization. Assets in smart beta exchange-traded funds will probably climb to $1 trillion by 2020 from $282 billion at the end of March, according to BlackRock, the world’s largest money manager. MSCI, FTSE and S&P Dow Jones all have indexes that use factors such as volatility, dividend yield and momentum.

“The index provider is becoming more of a stock picker,” said Rodney Comegys, head of investments for Asia Pacific at Vanguard Group, which oversees more than $3 trillion in mostly passive funds. “In some ways, they’re replacing the active manager.”

Bloomberg LP, the parent company of Bloomberg News, competes with MSCI and others by compiling indexes and providing analytics for stocks, bonds and commodities.

Indexes have played a key role in stock markets since the days of Charles Dow, who created the Dow Jones Industrial Average in the 1890s to track blue-chip U.S. stocks. What’s different now is that the gauges no longer just serve as a yardstick for money managers, they’re increasingly being used to determine the makeup of investor portfolios via index-tracking mutual funds, exchange-traded funds and derivatives.

Active Outflows

The shift toward passive investing in equities, which emerged with John Bogle’s Vanguard 500 Index Fund in the 1970s, has accelerated in recent years as traditional stock pickers lagged behind their benchmarks and volatile markets refocused investor attention on the costs of active management.

Global passive equity funds and ETFs, which charge fees as low as 0.01 percent, attracted $227 billion of net inflows in the 12 months ended June 15, versus $92 billion of outflows for active funds, which have an asset-weighted management fee of 0.62 percent, according to data compiled by Bloomberg on funds with at least $300 million of assets.