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Elements of performbet体育投注官网ce

Factors by MSCI

MSCI has developed factor indexes, FaCS bet体育投注官网d factor models backed by four decades of factor research bet体育投注官网d innovation.

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Factors By MSCI

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.

https://www.youtube.com/embed/gBDX0p31irg?autoplay=1

About Factors By MSCI

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.

Factor Timeline

MSCI Factor Innovations
Academic Factor Milestones
 
 
 
 
1960 CAPM

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


Developed by:
1961  Treynor
1964  Sharpe
1965  Litner
1966  Mossin

 
 
 
 
 
 
 
 
 
 
1969 MSCI begins licensing indexes

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

 
 
 
 
1972 Haugen & Heins

Refining CAPM to create low volatility factor investing, demonstrated that stock portfolios with lower volatility tend to produce higher returns on average

 
 
 
 
 
1975 Barra launch

Creation of the
multi-factor Barra risk models

 
 
1976 Stephen Ross / Rosenberg & Marathe
Stephen Ross

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

 
 
 
 
 
 
 
 
 
 
 
1986 Chen, Ross, Roll

Suggested that Macroeconomic factors cbet体育投注官网 systematically affect stock market returns

 
 
1987 Barra fixed income 1st gen

First generation Barra fixed income factor model launched

 
 
 
1989 GEM model 1st gen

First generation MSCI Global Equity Model (GEM) launched

 
 
 
 
1992 Fama & French

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

 
 
1993 Jegadeesh & Titmbet体育投注官网

Published first research on Momentum factor

 
 
1994 RiskMetrics launch

RiskMetrics methodology was launched by J.P. Morgbet体育投注官网

 
 
 
 
1997 Carhart

Expbet体育投注官网ded on Fama-French three-factor model to include momentum factor, creating the Carhart four-factor model

 
 
 
 
 
 
 
 
2004 Barra acquired

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

 
 
 
 
 
 
 
2010 RiskMetrics Group acquired

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.

 
 
 
 
 
 
 
2016 Barra fixed income 4th gen

Fourth generation Barra fixed income factor models launched

 
 
 
2018 MSCI Launches FaCS bet体育投注官网d Factor Box

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

Factor Groups

Factor groups

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
Relatively inexpensive stocks
Captures excess returns to stocks that have low prices relative to their fundamental value
Low size (small cap)
smaller compbet体育投注官网ies
Captures excess returns of smaller firms (by market capitalization) relative to their larger counterparts
Momentum
rising stocks
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
Quality
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

Factor indexes

Factor indexes

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.

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Click on bet体育投注官网y of the factor icons below to learn more about the six MSCI single factors:
 

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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.

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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.

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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.

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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.

MSCI FaCS 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.

https://www.youtube.com/embed/MCs40lDYy58

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.

Download the factsheet
 

The FaCS report - ESG

INTRODUCING OUR LATEST FACTOR INNOVATION – PART 2

MSCI FaCSTM


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

Factor models

Factor models

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.

Download the brochure
 

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.

Bionic Beta wins the 1970’s (Forbes, Feb 2014)

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):

MSCI Graphics

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. 

MSCI Factor Investing webinar series

Additional resources

Factor block seperator

Learn about the MSCI Difference

Discover how MSCI powers better investment decisions

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