MSCI Factor Indices
 |
Factors are defined in the Barra risk models as one identifiable source of risk - such as Momentum or Volatility - that can represent important drivers of both risk and return in equity markets. |
For many investors using the Barra risk models, fundamental factors play a central role in their equity investment processes, ranging from monitoring and controlling portfolio factor exposures to actively tilting portfolios to certain factors.
Combining considerable index construction and risk modeling expertise, MSCI created a series of investable indices designed to reflect a Barra risk model factors to support asset managers and hedge funds in their portfolio construction and risk management activities. The indices are constructed through optimization, which aims to achieve constant high exposure to a target factor, very low active exposure to all other factors, and minimum tracking error relative to the respective standard MSCI Index.
Designed for use by institutional investors in US and European equities, MSCI currently calculates twelve factor indices. Additional MSCI Factor Indices based on other factors and Barra country or regional risk models may be developed in the future based on client demand.
| Long-Short Factor Indices | Long Only Factor Indices | ||
|---|---|---|---|
| Long-short index optimized to offer market return plus exposure to a single factor, while removing exposure to other factors | Long-only index optimized to offer market return tilted for factor exposure | ||
| Barra Risk Factors | |||
| Momentum | MSCI Europe Barra Momentum Index | MSCI USA Barra Momentum Index | MSCI Europe Momentum Tilt Index |
| Volatility | MSCI Europe Barra Low Volatility Index | MSCI USA Barra Low Volatility Index | |
| Leverage | MSCI Europe Barra Low Leverage Index | MSCI USA Barra Low Leverage Index | |
| Value | MSCI Europe Barra Value Index | MSCI USA Barra Value Index | MSCI Europe Value Tilt Index |
| Earnings Yield | MSCI Europe Barra Earnings Yield Index | MSCI USA Barra Earnings Yield Index | |
The MSCI Factor Indices may be used in portfolio construction and risk management applications. For example, the MSCI Europe Barra Value Indices may be used to help capture the value risk premium of European equities or the MSCI USA Barra Low Volatility Indices may be used to help reduce exposure to the volatility factor in a US equity portfolio. The indices can also be licensed to serve as the basis for structured products and other index-linked investment vehicles.