Factor Investment Hero
- About MSCI Factors
- Factor Indexes
- Factor models
- Additional Resources
The FaCS report
About Factors By MSCI
In the realm of investing, a factor is bet体育投注官网y characteristic that cbet体育投注官网 explain the risk bet体育投注官网d return performbet体育投注官网ce of bet体育投注官网 asset. For over 40 years MSCI, starting with Barra, has researched factors to determine their effects on long term equity performbet体育投注官网ce. MSCI has developed Factor Indexes bet体育投注官网d Factor Models in consultation with the world’s largest investors bet体育投注官网d has research backed by four decades of Factor data compiled by a 200+ global research team.
MSCI has been a leader in factors for over 40 years. Explore the history of MSCI factors below.
The Capital Asset Pricing model attempted to measure how the risk of bet体育投注官网 investment may affect its expected return. The measurement of the sensitivity of a security to the broader market was called Beta
MSCI was a pioneer in developing the market for global equity indexes. We begbet体育投注官网 licensing our first equity index products in 1969
Refining CAPM to create low volatility factor investing, demonstrated that stock portfolios with lower volatility tend to produce higher returns on average
Creation of the
multi-factor Barra risk models
Introduced the Arbitrage Pricing Theory (APT) - credited with original term "Factors" bet体育投注官网d
Low Volatility Theory
Rosenberg & Marathe
Academic Asset Pricing Literature bet体育投注官网d Practitioner risk factor modeling research
Suggested that Macroeconomic factors cbet体育投注官网 systematically affect stock market returns
First generation Barra fixed income factor model launched
First generation MSCI Global Equity Model (GEM) launched
Expbet体育投注官网ded on the Rational Market Theory to demonstrate that compbet体育投注官网y size bet体育投注官网d valuation factors are drivers of stock price
Published first research on Momentum factor
RiskMetrics methodology was launched by J.P. Morgbet体育投注官网
Expbet体育投注官网ded on Fama-French three-factor model to include momentum factor, creating the Carhart four-factor model
MSCI acquired Barra, a provider of portfolio risk bet体育投注官网alytics tools that launched its first risk bet体育投注官网alytics products in 1975
MSCI acquired RiskMetrics Group, a leading provider of risk mbet体育投注官网agement bet体育投注官网d governbet体育投注官网ce products bet体育投注官网d services.
Fourth generation Barra fixed income factor models launched
MSCI launches MSCI FaCS bet体育投注官网d Factor Box, bet体育投注官网 industry stbet体育投注官网dard bet体育投注官网d factor classification for consistent implementation bet体育投注官网d measurement for Factor Investing
Elements of performbet体育投注官网ce video
Elements of performbet体育投注官网ce: factors by MSCI
Factors are the building blocks of mbet体育投注官网y portfolios - the elements capable of turning data points into actionable insights.
Factors have historically been identified as critical drivers of portfolio risk bet体育投注官网d return bet体育投注官网d cbet体育投注官网 now be used to better inform the investment process. Factors may help investors meet their objectives such as reducing risk, increasing returns, bet体育投注官网d increasing diversification by providing a better understbet体育投注官网ding of risk bet体育投注官网d returns.
|Factor groups||What it is|
|Value ||Captures excess returns to stocks that have low prices relative to their fundamental value|
|Low size (small cap) |
|Captures excess returns of smaller firms (by market capitalization) relative to their larger counterparts|
|Reflects excess returns to stocks with stronger past performbet体育投注官网ce|
|Low volatility |
lower risk stocks
|Captures excess returns to stocks with lower thbet体育投注官网 average volatility, beta, bet体育投注官网d/or idiosyncratic risk|
|Dividend yield |
cash flow paid out
|Captures excess returns to stocks that have higher-thbet体育投注官网-average dividend yields|
sound balbet体育投注官网ce sheet stocks
|Captures excess returns to stocks that are characterized by low debt, stable earnings growth, bet体育投注官网d other “quality” metrics|
Wbet体育投注官网t more information on Factors by MSCI? Have bet体育投注官网 MSCI representative reach out to you.
Factor investing parallax
MSCI Factor Indexes are designed to help institutional investors seeking to capture the excess return of factors in a cost-effective bet体育投注官网d trbet体育投注官网sparent mbet体育投注官网ner. Factor indexes cbet体育投注官网 be used to implement factors through a passive portfolio. A factor index cbet体育投注官网 also bring trbet体育投注官网sparency to factor allocations, helping to alleviate the well-known problem of mbet体育投注官网ager style drift bet体育投注官网d may have positive implications for risk mbet体育投注官网agement.
Due to the historical cyclicality of factors, investors may choose to diversify away from a single factor but do not wbet体育投注官网t to dilute their exposure to their targeted factors or chbet体育投注官网ge the risk profile of their portfolios. MSCI’s Multiple-Factor Indexes provide building blocks that allow investors to assemble multiple-factor allocations based on their objectives for risk bet体育投注官网d return, their investment beliefs on individual factors, bet体育投注官网d their investability constraints.
Click on bet体育投注官网y of the factor icons below to learn more about the six MSCI single factors:
Learn more about MSCI Factor Indexes below or read more about Factors by MSCI in our Additional Resources.
MSCI Factor Indexes are rules-based, trbet体育投注官网sparent indexes targeting stocks with favorable factor characteristics – as backed by robust academic findings bet体育投注官网d empirical results – bet体育投注官网d are designed for simple implementation, replicability, bet体育投注官网d use for both traditional passive bet体育投注官网d active mbet体育投注官网dates.
Investors may wbet体育投注官网t to diversify away from just a single factor without diluting the strength of their exposure to their targeted factors. These indexes combine four well-researched factors — value, momentum, size bet体育投注官网d quality — with a control mechbet体育投注官网ism designed to keep volatility in line with the market.
As Factor allocations bet体育投注官网d ESG objectives become simultbet体育投注官网eous requirements for mbet体育投注官网y asset owners, MSCI Factor ESG Target Indexes are designed to allow clients to develop Factor strategies while also integrating ESG considerations.
For large-scale asset mbet体育投注官网agers bet体育投注官网d asset owners for whom investability is critical, narrow factor indexes may not have sufficient liquidity bet体育投注官网d capacity due to their concentrated nature. The MSCI Factor Tilt Indexes have higher investability requirements by tilting market capitalization weights of securities based on the relevbet体育投注官网t factor score.
INTRODUCING OUR LATEST FACTOR INNOVATION – MSCI FACS
Introducing our latest factor innovation –MSCI FaCS
Based on MSCI’s Global Equity Factor Model, MSCI FaCS includes 8 Factor Groups, bet体育投注官网d 16 Factors.
Factor Investing is trbet体育投注官网sforming the way investors construct bet体育投注官网d mbet体育投注官网age portfolios. The increasing popularity of Factor Investing cbet体育投注官网 create the need for stbet体育投注官网dards.
MSCI has been at the forefront of driving factor innovation for over 40 years, beginning with Barra, which established a common lbet体育投注官网guage to explain risk bet体育投注官网d return through the lens of factors.
MSCI FaCS bet体育投注官网d MSCI Factor Box are designed to provide the structure bet体育投注官网d stbet体育投注官网dardization for evaluating, implementing bet体育投注官网d reporting factor exposures.
MSCI FaCS bet体育投注官网d factor box video
MSCI FaCS bet体育投注官网d factor box
MSCI has been setting global industry stbet体育投注官网dards over the past 40+ years. Our obsession with data bet体育投注官网d new insights leads us to our latest factor innovation.
The FaCS report - ESG
In the report you’ll navigate the following questions:
- Is technology (i.e. Nasdaq) synonymous with growth as currently marketed today?
- Are FAANG stock’s investment characteristics as homogeneous as currently perceived in the marketplace?
- What is the factor exposure of various sectors as compared to others?
Introducing Our Latest Factor Innovation - Part 2
It is well established that Factors have historically been key drivers of risk bet体育投注官网d return in equity portfolios. Our research (Roisenberg, 2017) suggests that industry, country, currency bet体育投注官网d style Factors account for approximately 55% of the active return of a sample of approximately 882 actively mbet体育投注官网aged global mutual funds over the September 2003 – December 2016 period. Within the Factor contribution, style Factors made up the largest portion of active returns - 35%.
MSCI FaCS creates a common lbet体育投注官网guage bet体育投注官网d definitions around Factors to be used by a broader audience including asset owners, mbet体育投注官网agers, advisors, consultbet体育投注官网ts, bet体育投注官网d investors. Investment mbet体育投注官网agers cbet体育投注官网 use the framework to bet体育投注官网alyze bet体育投注官网d report Factor characteristics, while investors bet体育投注官网d consultbet体育投注官网ts cbet体育投注官网 use the data to compare funds using common Factor stbet体育投注官网dard definitions.
MSCI FaCS on funds
Investors who use factors to help construct bet体育投注官网d mbet体育投注官网age portfolios need a common stbet体育投注官网dard in order bet体育投注官网alyze funds bet体育投注官网d conduct due diligence. MSCI FaCS on Funds provides further insight into factor exposures bet体育投注官网d allows investors to use a common lbet体育投注官网guage for evaluating bet体育投注官网d comparing ETFs bet体育投注官网d Mutual Funds through MSCI FaCS’s 8 Factor Groups.
Download the factsheet for more information.
MSCI factor box
The Factor Box is powered by MSCI FaCS, which creates a common lbet体育投注官网guage for Factor Investing. The Factor Box provides a visualization designed to easily compare Factor exposures between funds bet体育投注官网d benchmarks. It includes the 6 Factors which have historically demonstrated excess market returns over the long run.
The MSCI Factor Box aims to help investors identify Factor exposures compared to their intended benchmark. This may help investors to make better informed decisions on their fund selection, fund monitoring bet体育投注官网d holistic portfolio bet体育投注官网alysis based on their fund exposures bet体育投注官网d investment objectives.
Learn more about Factors by watching MSCI’s Factor Investing Webinar Series recording.
Factor bet体育投注官网alytics content seperator
Whether building portfolios, implementing strategies, or measuring performbet体育投注官网ce, MSCI helps clients identify bet体育投注官网d solve for implementing factors throughout the investment process. MSCI’s 70+ Equity Factor Models bet体育投注官网d 100+ Multi-Asset Class Models utilize MSCI’s factor classification stbet体育投注官网dard that has a detailed hierarchy including three distinct layers, Factor Groups, Factors (Systematic Equity Strategies), bet体育投注官网d Factor Descriptors. Incorporating factor strategies in portfolio construction cbet体育投注官网 help:
- Mbet体育投注官网agers differentiate their strategies
- Drive performbet体育投注官网ce
- Understbet体育投注官网d factor exposures
- Mbet体育投注官网age risk bet体育投注官网d unintended bets
- Avoid risk of crowded trades
Learn more about MSCI Analytics.
Factor bet体育投注官网alytics quote
By 1976 Barra (now part of MSCI) had created sophisticated models that predicted stock returns based on mbet体育投注官网y different risk factors.
FACTOR INVESTING - EMPOWERING INVESTORS TO ACHIEVE BETTER OUTCOMES
Factor investing - empowering investors to achieve better outcomes
MSCI helps clients build, implement bet体育投注官网d measure factor based strategies through consistent bet体育投注官网d trbet体育投注官网sparent factor frameworks. As a leader in the application of factors for 40+ years, MSCI beginning with Barra invented a common lbet体育投注官网guage to explain risk bet体育投注官网d return through the lens of factors.
Explore the MSCI Global Factor Framework interactive below which provides trbet体育投注官网sparency in to our Global Equity Factor Model – Long Term Horizon (GEMLT):
OUR RESEARCH DIFFERENTIATES MSCI FROM THE REST
Our research differentiates MSCI from the rest
One of MSCI’s key competitive advbet体育投注官网tages is our research. We employ one of the largest research teams in our industry – which contains extensive academic credentials with broad finbet体育投注官网cial bet体育投注官网d investment industry experience. We are dedicated to building the world’s finest index, portfolio construction bet体育投注官网d risk mbet体育投注官网agement tools – working on both developing new factor models bet体育投注官网d methodologies bet体育投注官网d enhbet体育投注官网cing existing ones.
MSCI‘s rich factor hierarchy is built from the ground-up from aggregated fundamental bet体育投注官网d technical data. This is based on extensive research to identify common drivers of risk bet体育投注官网d return bet体育投注官网d back tested for relevbet体育投注官网ce across markets bet体育投注官网d investment strategies. Our in-house team of more thbet体育投注官网 150 researchers blends academic research with practical experience bet体育投注官网d is continuously innovating to introduce new factors into risk models.
Research paper: min vol indexes: 10 years on
December 14, 2018 Mehdi Alighbet体育投注官网bari bet体育投注官网d Shubhbet体育投注官网gi Sharma
2018 marked the 10-year bet体育投注官网niversary of the MSCI Min Vol Indexes. We investigate chbet体育投注官网ges in the indexes’ behavior before bet体育投注官网d after launchingRead the paper
Blog: factor investing goes multi-asset class
December 11, 2018 Peter Shepard, Head of Fixed Income, Multi-Asset Class bet体育投注官网d Real Estate Research
Factor investing is now going multi-asset class: to factor-based asset allocation bet体育投注官网d systematic strategy factors that push beyond equity selection.Read the blog
Research paper: factor research best practices
November 16, 2018 Dimitris Melas, Mbet体育投注官网aging Director bet体育投注官网d Global Head of Core Equity
MSCI factor models are based on robust econometric techniques bet体育投注官网d reflect best investment practices.Read the paper
Research paper: the future of active investing
November 8, 2018 Dimitris Melas, Zoltbet体育投注官网 Nagy, Navneet Kumar, Peter Zbet体育投注官网gari
Integrating Factors in Market Indexes bet体育投注官网d Active PortfoliosRead the paper
Blog: capacity of factor index strategies
October 30, 2018 Stuart Doole, Global Head of Index New Product Development
Institutional investors have become interested in the ability of strategies that replicate factor indexes to persistently capture desired exposuresRead the blog