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  1. BLOG

    Managing MBS risk in a rising rate environment (Part 2) 

    Nov 21, 2018 Yihai Yu

    Fixed Income , Risk Management

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    Will U.S. homeowners slow down the heady prepayment rate on their mortgages — even if interest rates remain unchanged, thus potentially harming returns of mortgage-backed securities (MBS) and extending the duration of these securities?

  2. BLOG

    Small cap allocations may not be that straightforward 

    Nov 20, 2018 Abhishek Gupta

    Global Investing , Factor Investing

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    The low size factor, or the premium that has been historically realized by investing in smaller sized companies over longer time periods, forms an integral component of many institutional portfolios. However, investors can choose different ways to making a low size allocation.

  3. BLOG

    Sector investing in China 

    Nov 14, 2018 Anil Rao

    Emerging Markets , Global Investing , Factor Investing

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    As the China A shares market has evolved, investors have faced new choices. They can continue with broad allocations to the emerging markets (EM), choose slightly narrower allocations to China and other specific EM countries or consider targeted investments within China through a variety of means.

  4. BLOG

    Credit binge hangovers have historically been a challenge 

    Nov 9, 2018 David Zhang

    Fixed Income , Risk Management , Integrated Risk Management

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    Credit spreads and debt issuance are at historical levels, as credit markets show signs of overheating. History has shown that following an overheated credit market, long-term credit returns have been generally weaker, in absolute terms and relative to U.S. Treasurys; particularly for high yield (HY). Given the intensity of past credit binge hangovers, long-term investors may want to review their current asset allocation strategies.

  5. BLOG

    Which Factors Mattered in China? 

    Nov 7, 2018 Oleg Ruban

    Models/Client Cases , Global Investing , Factor Investing

    Learn More

    Chinese equity prices have hardly been music to investors’ ears so far in 2018. The MSCI China A Onshore IMI Index — the broadest MSCI A shares index designed to represent the performance of the overall A shares market — has declined more than 25% in local currency terms through Oct. 31, 2018. Were there factors in this market that outperformed?

  6. BLOG

    Equity Markets in October – Has the Tide Turned? 

    Nov 5, 2018 Leon Roisenberg , George Bonne

    Models/Client Cases , Factor Indexes , Factor Investing

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    October’s market sell-off reflected investors’ concerns with the sustainability of economic growth, the longer-term impact of trade tariffs and rising interest rates. In all, it seemed to be a shift away from pro-cyclical themes. Do risks remain for those areas of the market?

  7. BLOG

    Is the bond-equity hedge slipping away? 

    Nov 1, 2018 Michael Hayes , Thomas Verbraken

    Equity Themes , Fixed Income , Integrated Risk Management

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    In October, the 10-year U.S. Treasury yield hit a 7-year high in response to strong economic news, contributing to the second major equity sell-off this year.1 If positive moves in yield continue to drive down equities, this would mean an end to the hedge between stocks and bonds that has been in effect since around 2002. Investors may seek alternative means of diversification, with potentially deep ramifications for strategic asset allocation decisions and multi-asset class strategies.

  8. BLOG

    What drives the capacity of factor index strategies? 

    Oct 30, 2018 Stuart Doole

    Factor Indexes , Factors , Factor Investing

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    As factor investing becomes increasingly “business as usual,” institutional investors have become keenly interested in the ability of strategies that replicate factor indexes to persistently capture desired exposures without compromising exposure to the target factor. We illustrate six index design approaches that can be used to tackle this challenge.

  9. BLOG

    Apples vs. Oranges? Core vs. Opportunistic Real Estate Funds 

    Oct 25, 2018 Amit Nihalani

    Real Estate Investing , Risk Management , Global Investing

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    Real estate investors sometimes treat core and opportunistic funds as if they were different asset classes. They are measured against different benchmarks and comparisons are limited by a lack of consistent data. But a comparison of the two shows that both core and opportunistic funds have similar return profiles — it’s the magnitude of their returns that has varied over time.

  10. BLOG

    Hedge Fund Returns: Is Fund Selection Important? 

    Oct 22, 2018 Yang Liu

    Models/Client Cases , Factors , Integrated Risk Management

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    Many investors view hedge funds as a way to generate returns uncorrelated with other parts of the portfolio. We found that performance and sources of performance varied, but that exposure to traditional and factor investing strategies accounted for the majority of a typical hedge fund’s returns. Should hedge fund investors pay particular attention to fund selection?

  11. BLOG

    Are Argentina and Turkey just the first dominoes to fall? 

    Oct 17, 2018 Limin Xiao , Thomas Verbraken

    Emerging Markets , Fixed Income , Risk Management , Integrated Risk Management

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    Argentina and Turkey have experienced sharp corrections in their currency and debt markets over the past couple of months, leading investors to worry about possible contagion to other emerging-market (EM) countries. Are other emerging markets heading in the same direction?

  12. BLOG

    Did FAANG Stocks lead the US Stock Market Drop? 

    Oct 15, 2018 Andrei Morozov , Jun Wang

    Factor Investing

    Learn More

    Fears of a global slowdown have sent U.S. stock markets plummeting recently. Given FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have been a dominant force in driving U.S. market performance higher over the past few years, did these stocks lead the market’s downward trajectory?

  13. BLOG

    Quitting tobacco stocks without going through withdrawal 

    Oct 15, 2018 Zoltán Nagy

    Models/Client Cases , ESG Research

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    Despite strong headwinds, including renewed divestment pressure,1 the tobacco industry has proved quite resilient financially and outperformed the stock market over the past 18-1/2 years. So much so, that some institutional investors are now thinking of lifting tobacco bans in their investment policies. We found that most of the gains associated with holding tobacco stocks over this period were not specific to the tobacco industry, and could have been obtained in other ways. We also show it would have been possible to divest from tobacco without taking a hit to portfolio performance during our sample period.

  14. BLOG

    Is MBS Refinance Risk Increasing? 

    Oct 12, 2018 Joy Zhang

    Integrated Risk Management

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    With the Federal Reserve raising interest rates and the majority of agency mortgage-backed securities (MBS) under the refinance threshold, how much do investors need to worry about refinance risk? Our model indicates that future refinance regimes would be similar to recent 2016 experiences, and this view is consistent with current behavior of MBS empirical durations. However, investors may want to remain vigilant, as the recent trend toward looser mortgage credit standards by agencies and regulators could increase the prepayment intensity of future refinance waves.

  15. BLOG

    How the low volatility factor has performed in China A shares 

    Oct 11, 2018 Zhen Wei

    Global Investing , Factor Investing

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    Which factors have performed best in the China A market, especially given its relatively high annualized market volatility? Is there too much risk to bear? We investigate the role that the minimum volatility factor has played.

  16. BLOG

    China A Shares: The Journey Continues 

    Oct 10, 2018 Chin Ping Chia

    Emerging Markets , Global Investing

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    As China continues to open its capital markets to global investors and accessibility standards have improved, MSCI recently launched a consultation to explore increasing the weight of A shares in the MSCI Emerging Markets Index. Ultimately, we seek to reflect the full investable opportunity set — all of China accessible to global investors — in the benchmark, as we do in all MSCI Global Investable Market Indexes.

  17. BLOG

    How can active managers add factors to the portfolio? 

    Oct 2, 2018 Dimitris Melas

    Factors , Factor Investing

    Learn More

    Discretionary managers use fundamental analysis to select stocks and construct portfolios that seek to beat the market. These managers face substantial headwinds in the current environment. From a business perspective, they are under pressure to reduce cost and improve performance. The market environment has also been challenging, as high correlations between stocks and the dominance of a handful of large technology companies have made it harder to generate alpha from stock selection.

  18. BLOG

    Managing Risk Over Different Investment Horizons 

    Sep 25, 2018 Jun Wang , Andrei Morozov

    Risk Management , Integrated Risk Management

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    Given high market valuations, some investors worry that a market pullback may be at hand. We saw markets gyrate earlier this year — what if volatility returns? How investors respond to changing market conditions may depend on their time horizons.

  19. BLOG

    Corporate Disclosure in a TCFD World 

    Sep 24, 2018 Laura Nishikawa

    ESG Research , Global Investing

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    In June of 2017, the Task Force on Climate-related Financial Disclosure (TCFD) released climate-related disclosure recommendations to companies and investors that included a framework for better company disclosure and a request for climate scenarios as part of that disclosure. But for investors looking to incorporate environmental risk into their process, there might be a pretty big catch: We mapped over 140 MSCI ESG Research climate-related data points to the TCFD framework and found a significant gap between what investors need to know under these recommendations and what companies are telling them.

  20. BLOG

    GICS Changes: Risk Depends on How It’s Measured 

    Sep 21, 2018 Daniel R. Barrera

    Models/Client Cases , Integrated Risk Management

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    As some very large companies switch sectors because of changes to the Global Industry Classification Standard (GICS®) structure, there will likely be implications for investors. We looked at how these changes may affect the risk profiles of six of the largest reclassified companies.

  21. BLOG

    Managing MBS risk in a rising rate environment (Part 1) 

    Sep 17, 2018 Yihai Yu

    Fixed Income , Risk Management

    Learn More

    Bond investors lost $1 trillion during “the great bond massacre”1 of 1994, which was triggered by the Federal Reserve’s aggressive tightening of interest rates. Many U.S. mortgage-backed securities (MBS) investors and broker-dealers misjudged the risk that fixed-rate prime mortgage borrowers would defer prepayments due to market conditions. This risk — known as “extension risk” — means that borrowers may hold onto mortgages longer than previously expected.

  22. BLOG

    Global Real Estate: To Hedge, or Not to Hedge 

    Sep 12, 2018 Will Robson , Bryan Reid

    Real Estate Investing , Risk Management , Global Investing

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    While not quite as profound as the Shakespearean original, it is still quite a tricky one for real estate investors to grapple with. Until fairly recently, it is one that has been avoided by the majority of real estate investors due to their heavy home bias. But the increasing global nature of the asset class, combined with rising currency volatility, means the question is becoming increasingly difficult to avoid.

  23. BLOG

    Remember, US inflation is a long and winding road 

    Sep 5, 2018 Andy Sparks

    Models/Client Cases , Fixed Income , Integrated Risk Management

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    A remarkable calm has settled upon the U.S. bond market, with interest rate and inflation risk now at their lowest levels of the decade. This optimistic sentiment was underscored at the annual Jackson Hole, Wyoming conference where Federal Reserve (Fed) Chairman Powell highlighted that there is “…no clear sign of an acceleration (of inflation) above 2% and there does not seem to be an elevated risk of overheating.”

  24. BLOG

    Weighty Matters: Going Beyond Stock-Picking 

    Aug 30, 2018 Anil Rao

    Factor Investing

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    Fundamental equity managers have traditionally looked for an edge using various strategies and approaches. Here we examine whether it historically has been possible to manage a fund’s risk exposures without disturbing the underlying investment process.

  25. BLOG

    Is momentum a crowded trade that is starting to unwind? 

    Aug 29, 2018 George Bonne , Leon Roisenberg

    Models/Client Cases , Factor Indexes , Factor Investing

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    The momentum factor has been on a tear the last year and a half. Is momentum a crowded trade that has started to unwind?

  26. BLOG

    Equity valuations resist running with the bulls 

    Aug 23, 2018 Saurabh Katiyar

    Factors , Integrated Risk Management

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    The U.S. bull market is now the longest in history, leading the way for strong global equity returns over the 10 years since the financial crisis. What does this mean for valuations? We found that while they are high, they have not reached extreme levels. What’s more, there are distinct valuation characteristics across regions, sectors and factors that may create potential investment opportunities.

  27. BLOG

    What if Credit Spreads Widen? 

    Aug 21, 2018 Hamed Faquiryan

    Fixed Income , Risk Management , Integrated Risk Management

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    Despite robust economic growth in the U.S., market conditions — as defined by tight spreads and high valuations — have wary credit investors on the lookout for trouble as the credit cycle matures. One area of scrutiny is BBB-rated credit, which sits in the middle of the rating hierarchy. Should spreads suddenly widen, investors may want to be prepared for a potential wave of BBB credits cascading into the high-yield market.

  28. BLOG

    Does Turkey offer lessons for managing emerging-market currency volatility? 

    Aug 15, 2018 Raman Aylur Subramanian

    Emerging Markets , Global Investing

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    The recent 40% drop in the Turkish lira is part of a long-term trend of rising emerging-market currency volatility. Typically, investors do not hedge this exposure. Is it time to reconsider this approach?

  29. BLOG

    Is Japan’s “lost decade” Over? 

    Aug 14, 2018 Naoya Nishimura

    Equity Themes , Global Investing

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    The Japanese equity market’s spectacular crash in the early 1990s is referred to as the “lost decade.” Recently, this period has been extended to include the decade that followed. Despite this, most Japanese investors continue to favor an outsized domestic equity allocation. This home bias has come with a huge opportunity cost. Since the end of 1987, the cumulative return of global stocks was over 1,400% in yen terms, while the cumulative return of Japanese stocks was only 49%.

  30. BLOG

    Why is Tesla a Short-Selling Target? 

    Aug 13, 2018 Dimitris Melas , George Bonne

    Models/Client Cases , Integrated Risk Management , Factor Investing

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    Elon Musk, founder and CEO of Tesla, suggested in a series of tweets that going private could help Tesla avoid the scrutiny of quarterly reporting and pressure from short selling. Do companies targeted by short sellers share common characteristics? Could factor analysis help investors identify stocks that may become short-selling targets?

  31. BLOG

    What happens if Italy leaves the EU? 

    Aug 6, 2018 Thomas Verbraken

    Models/Client Cases , Global Investing , Integrated Risk Management

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    With populist policies on the rise, globally, many believe Italy’s coalition government could add to the EU’s challenges by pursuing populist strategies that could further disrupt both equity and bond markets. We consider two scenarios – a severe and mild one – with very different implications.

  32. BLOG

    All FAANGs are Not Created Equal 

    Aug 3, 2018 George Bonne

    Factors , Factor Investing

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    FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) make up nearly 40% of the NASDAQ 100 index, and smaller but significant weights in many others. Commonly grouped as tech stocks or growth companies, it seems reasonable to assume they share many similar characteristics. However, when examined through the lens of performance-driving factors, their characteristics are far from homogeneous.

  33. BLOG

    What is Going on With Factor Returns? 

    Jul 18, 2018 Leon Roisenberg

    Factor Indexes , Factors , Factor Investing

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    Value and momentum factors typically move in opposite directions—that is, when one outperforms the market, the other usually underperforms. In June, however, both factors underperformed the market, leading some observers to question whether this change in market behavior is impairing quantitative strategies.

  34. BLOG

    Can investors win a U.S.-China trade war? 

    Jul 3, 2018 Anil Rao

    Equity Themes , Economic Exposure , Global Investing , Integrated Risk Management

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    With new tariffs in effect as of July 6, we investigate our earlier assertion that “while an expanded trade war could lead to a ‘lose-lose’ outcome, there could be greater impact for stocks in the U.S. Overall, they are more exposed to the Chinese economy than the other way around.”

  35. BLOG

    Can Your Investment Strategy Work with China A Shares? 

    Jun 27, 2018 Zhen Wei

    Global Investing , Factor Investing

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    Many institutional investors have long viewed China A shares as an inefficient market, suggesting that active strategies such as stock-picking can thrive. However, researching a universe of over 3,500 stocks comes with huge challenges, and may lead investors to question whether factor-based systematic strategies could have worked well with China A shares.

  36. BLOG

    Bonds and Equities: Still Happy Together? 

    Jun 25, 2018 Andy Sparks

    Integrated Risk Management

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    For many years now, stock and bond returns have consistently moved in opposite directions. But the timing of selloffs earlier this year in the bond and equity markets combined with inflation concerns and higher interest rates have market participants asking whether the relationship has changed.

  37. BLOG

    What’s Driving High-Yield Spreads? 

    Jun 14, 2018 Hamed Faquiryan

    Fixed Income

    Learn More

    The recent trend in high-yield market spreads appears to relate more to concern about rising rates than the potential for credit losses. However, investors should be aware that the impressive recent performance of short-dated high yield bonds and floating-rate leveraged loans may be reversed if credit conditions begin to deteriorate.

  38. BLOG

    International small caps are alive and kicking 

    Jun 11, 2018 Anil Rao

    Global Investing

    Learn More

    Investors eager to write the obituary of the size premium might want to put down their pens. Small-cap stocks in developed markets outside the U.S. have been on a decade-long run of outpacing their large- and mid-cap counterparts.

  39. BLOG

    As Credit Risk Rises, Beware of Selection Bias in CLOs 

    Jun 1, 2018 Joy Zhang

    Fixed Income

    Learn More

    Investors in the booming U.S. Collateralized Loan Obligation (CLO) market likely need to be aware of the risks: record tight spreads, deteriorating credit quality, and, as our expanded CLO data analytics reveal, selection bias risk.

  40. BLOG

    The World Comes to China 

    May 23, 2018 Chin Ping Chia

    Global Investing

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    Emerging markets may never be the same. On May 31, MSCI will include about 233 China large-cap A shares to the MSCI Emerging Markets Index. Inclusion at a 5% initial weight could lead to approximately USD 22 billion of capital inflows into these stocks. What might investors need to consider as we approach this milestone?

  41. BLOG

    Why index funds promote market efficiency 

    Apr 26, 2018 Dimitris Melas

    Global Investing

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    Institutions and individuals increasingly invest through funds that track indexes. While index funds bring transparency and low cost, their critics claim that they allocate capital indiscriminately, hurting market efficiency. Is this claim supported by the evidence? It is not. Our analysis shows that, far from damaging market efficiency, index funds1 facilitate active portfolio management by offering investors diverse and efficient tools to express investment views and implement active investment decisions.

  42. BLOG

    Winners and Losers of a U.S.-China Trade War 

    Apr 17, 2018 Zhen Wei

    Economic Exposure , Factor Indexes , Global Investing

    Learn More

    The question of who wins or loses a U.S.-China trade war has more than two possible answers. While much of the analysis has focused on China’s heavier reliance on exports to the U.S., American companies (and those who invest in them) actually have greater revenue exposure to China than the other way around. In fact, 5.1% of the revenues of companies in the MSCI USA Index come from China and may be at risk as a result of a trade war. In comparison, only 2.8% of the revenues of the companies in the MSCI China Index come from the U.S.

  43. BLOG

    What if the U.S.-China Trade War Escalates? 

    Apr 13, 2018 Thomas Verbraken , András Urbán

    Integrated Risk Management

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    Markets appear to have priced in the recent tariffs, but the risk of a broader trade war still looms. Market scenarios based on economic studies suggest an all-out trade war could drive global equity prices down another 10%, with U.S. investors receiving the worst of it.

  44. BLOG

    Putting the spotlight on Spotify: Why have stocks with unequal voting rights outperformed? 

    Apr 3, 2018 Dimitris Melas

    Global Investing

    Learn More

    Nearly 15 years after Google’s initial public offering, the debate about listed companies that offer unequal voting rights to outside investors rages on. A number of high-profile technology companies including Dropbox Inc., Spotify and Snap Inc. have recently listed shares with unequal voting rights, adding fuel to the debate. Meanwhile, investors are trying to determine if they should shun the stock issued by these companies or include them in equity portfolios.

  45. BLOG

    Does the market contain too much Facebook? 

    Mar 29, 2018 Roman Kouzmenko

    Global Investing

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    Facebook’s privacy issues, Apple’s European tax woes and Amazon’s global ambitions are constantly in the news. And over the last few years, large U.S. technology companies, sometimes known as FAANG, have made up larger slices of the global equity market. Should their level of market concentration concern investors?

  46. BLOG

    The coming wave of fund liquidity risk regulation 

    Mar 7, 2018 Carlo Acerbi

    Risk Management , Integrated Risk Management

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    Asset managers globally can no longer ignore fund liquidity risk management.

  47. BLOG

    Speed bump or regime shift? Deconstructing the recent spike in equity market volatility 

    Feb 23, 2018 Chenlu Zhou

    Factors , Factor Investing

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    The week of Feb. 5 witnessed a return of market volatility not seen since the days of the euro crisis in 2011. After hovering near 10% for most of the past year, the level of the VIX briefly topped 50%. What caused the spike?

  48. BLOG

    Do Factors Stand Up to FAANG? 

    Feb 21, 2018 Dimitris Melas

    Factors , Factor Investing

    Learn More

    Large U.S. technology companies, the so-called FAANG, dominated the U.S. stock market in the last few years and had a significant impact on many investment strategies. These companies have been underrepresented in most factor-based strategies due to their unattractive factor characteristics. Have factor investors suffered from not investing in these stocks?

  49. BLOG

    Stress-Testing Risk-Parity Strategies 

    Feb 16, 2018 Gergely Szalka

    Factors

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    The recent surge in volatility took some investors by surprise: The level of the VIX doubled in a day, and put an end to some strategies that involved short selling of the VIX. But larger exposures to rising volatility may be hiding elsewhere, including in volatility targeting and risk-parity strategies designed to better balance risk across asset classes. We stress tested potential scenarios to explore the vulnerabilities.

  50. BLOG

    How easy is it to track a bond market index? 

    Feb 15, 2018 Andy Sparks

    Fixed Income

    Learn More

    Many investors may have only a qualitative understanding of the ability of indexed fund managers to track the returns of a fixed-income index. Our analysis uses tracking error to provide a quantitative measure of the ease – or difficulty – of consistently tracking an index.

  51. BLOG

    Understanding Factor Exposures When Markets Become Volatile 

    Feb 9, 2018 Anil Rao

    Factors , Factor Investing

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    How did different equity factors fare during the past week’s market turmoil? When markets are gyrating, it can be difficult to figure out just what is happening. Real-time data provides greater insight into market events as they unfold.

  52. BLOG

    Dissecting the Stock Market Sell-Off 

    Feb 6, 2018 Dimitris Melas

    Factors

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    Growing fears about rising inflation and interest rates sparked a decline across equity markets in the last few days.

  53. BLOG

    Creating a common language for factor investing 

    Jan 18, 2018 George Bonne

    Factor Investing

    Learn More

    Investors need a clear and consistent way to talk about factors. For more than 40 years, MSCI has defined how investors use factors to analyze risk and return, from individual stocks to entire portfolios. Factors are important drivers of portfolio performance and are well documented in academic research. They are used to quantify how much risk and return is attributable to different countries, sectors and styles.

  54. BLOG

    Diverging emerging markets: global equity markets in 2017 

    Jan 12, 2018 Anil Rao

    Equity Themes , Emerging Markets

    Learn More

    The emerging markets rally, the U.S. dollar’s depreciation and the resurgence of global growth were the top three drivers behind a double-digit rally in global equities last year. Stocks were led by the MSCI Emerging Markets Index’s 38% return. Developed markets, as represented by the MSCI World Index, returned 23% last year. As we enter 2018, investors will monitor whether these themes continue into the New Year.

  55. BLOG

    Leveraged loans: Risks, rewards and investor protections 

    Jan 11, 2018 Hamed Faquiryan

    Fixed Income

    Learn More

    As central banks continue to keep interest rates at historic lows, many institutional investors have turned to leveraged loans for their attractive yields.

  56. BLOG

    Getting Ready for Liquidity Risk Management Rules 

    Dec 14, 2017 Carlo Acerbi

    Risk Management , Integrated Risk Management

    Learn More

    The U.S. Securities and Exchange Commission’s liquidity rule is designed to protect investors from incurring significant transaction costs when the assets in their mutual funds are not liquid enough to sustain funds’ redemption policies.

  57. BLOG

    Improving Stock Selection in the Age of Big Data 

    Nov 20, 2017 Oleg Ruban

    Factors , Factor Investing

    Learn More

    In the age of big data, fundamental stock pickers face a major challenge. Stock selection typically depends on establishing research conviction in the operating models of companies, such as identifying inexpensive businesses that demonstrate sustainable competitive advantage, disciplined capital management and strong corporate governance. The stock picker’s edge may rely on analyzing information and top-notch research skills.

  58. BLOG

    Using factors in international investing 

    Nov 8, 2017 Anil Rao

    Factors , Factor Investing

    Learn More

    Over the last decade, asset owners have implemented factor investment programs with a focus on domestic markets. Increasingly, they are also funding equity factor programs in international markets. Two catalysts are driving this trend. First, there has been a steady erosion in asset owners’ home biases, leading to more indexed and active international mandates. Second, investment committees and boards of trustees have become more comfortable with using factors as a complement to core indexed and traditional active allocations.

  59. BLOG

    Integrating ESG criteria into factor index construction 

    Sep 27, 2017 Stuart Doole

    Factor Indexes , ESG Research , Factors , Factor Investing

    Learn More

    Institutional investors increasingly are moving toward integrating ESG criteria into their portfolios and their factor allocations, in particular. This shift is driven by their recognition of the financial relevance of ESG issues to their risk management and their focus on long-term sustainable investing.

  60. BLOG

    Don’t Let CoCo Bond Risk Sneak Up On You 

    Sep 18, 2017 Gergely Szalka

    Models/Client Cases , Fixed Income , Integrated Risk Management

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    Convertible contingent securities — known as “CoCo bonds”-- are a popular form of hybrid debt, but they can be hard to value when issuers head into troubled waters. These securities are a form of risky debt (typically issued by European financial institutions) that convert to equity when a predetermined trigger is met, such as when the issuer’s capital or balance sheet plunges in value.

  61. BLOG

    Why are Small Caps Different? 

    Sep 18, 2017 Raina Oberoi

    Global Investing , Factor Investing

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    A lot has been written about the persistence of the global small-cap premium. But what, apart from size, distinguishes small-cap stocks from their large- and mid-cap counterparts, and how can these distinctions help institutional investors?

  62. BLOG

    How Institutional Investors Are Responding to Climate Change 

    Sep 14, 2017 Manish Shakdwipee

    Equity Themes , ESG Research , Fixed Income

    Learn More

    How are institutional investors tackling climate-change risk in their portfolios? Thanks partly to global initiatives such as the Montreal Pledge and the Portfolio Decarbonization Coalition, both launched in 2014, many institutional investors have moved quickly to understand the long-term portfolio implications of climate change and to adopt climate-risk management techniques.

  63. BLOG

    Investing for the Long Run: ESG and Performance Drivers 

    Sep 4, 2017 Zoltán Nagy

    Equity Themes , ESG Research

    Learn More

    We see a growing number of institutional investors seeking to avoid financial risks associated with environmental, social and governance (ESG) factors, or even to enhance returns by investing in companies that have strong ESG track records. As we wrote in an earlier blog post, these investors are typically looking to limit the number of companies excluded from their portfolios, both to avoid sacrificing diversification and to be active owners able to engage with corporate management.

  64. BLOG

    Are Market Valuations in Nosebleed Territory? 

    Aug 22, 2017 Dimitris Melas

    Equity Themes , Fixed Income

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    Markets have enjoyed a relatively long period of positive returns and low volatility, making some investors wonder if a correction is imminent. One possible trigger for a correction would be investors concluding that market valuations have become extreme, which could lower future returns.

  65. BLOG

    Fast-moving Markets: Revisiting the August 2007 Quant Crunch in Real Time 

    Aug 2, 2017 Anil Rao

    Equity Themes

    Learn More

    When markets get volatile, stock prices can move very quickly in a short period. As we saw in the August 2007 “quant liquidity crunch”— now about to mark its 10-year anniversary — many quantitative equity managers could have benefitted from getting market insights in real time as they found themselves in crowded trades.

  66. BLOG

    Time to Revisit Fundamentals of Quality? 

    Jul 19, 2017 Hitendra D Varsani

    Factor Investing

    Learn More

    We have seen substantial rotation in factor index performance in the past 12 months. Value, the best-performing equity factor index in the second half of 2016, was the worst performer in the first six months of 2017.

  67. BLOG

    Measuring the Impact of Factors 

    Jul 12, 2017 Leon Roisenberg

    Factors , Factor Investing

    Learn More

    In constructing portfolios, asset managers expose the portfolio to factor tilts that greatly influence fund performance. Some of these exposures, which can provide sources of excess return, may be intentional but others may not. A manager who makes the wrong bet could be on the wrong side of history.

  68. BLOG

    Global small-cap fund capacity: no small matter 

    Jun 15, 2017 Raina Oberoi

    Global Investing , Factor Investing

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    In recent years, pension funds around the world increasingly have shed their home bias and made global small-cap allocations.

  69. BLOG

    Are Corporate Bonds Vulnerable to ECB Tapering? 

    Jun 7, 2017 Andy Sparks

    Fixed Income

    Learn More

    With employment generally strengthening and inflationary pressures rising, fixed income markets are increasingly focused on central banks tapering bond purchases and ultimately retiring their quantitative easing (QE) programs. Key questions now facing institutional investors include: What has been the impact of the QE programs? How much of this impact could be reversed as the programs are eventually wound down?

  70. BLOG

    Managing Fixed-Income Risk in Turbulent Times 

    Jun 7, 2017 Peter Shepard

    Fixed Income

    Learn More

    Fixed-income markets have weathered a series of financial crises since 2008, forcing institutional investors to discard old assumptions and seek a risk management framework suited to the new, ever changing environment.

  71. BLOG

    Bridging the gap: Adding factors to indexed and active allocations 

    May 2, 2017 Anil Rao

    Factors

    Learn More

    How can asset owners integrate an equity factor allocation into their existing roster of active managers? There is no one answer that suits all. The response may be different for each asset owner, depending on its investment beliefs, goals and risk tolerance.

  72. BLOG

    Has the Growth Factor Earned a Premium? 

    Apr 27, 2017 Simon Minovitsky

    Factors

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    Asset managers devise investment strategies aimed at beating their benchmarks, but sometimes these strategies fall down in their implementation. Understanding exposures to different factors enables asset managers to make more informed decisions and allows institutional investors to evaluate the alignment of portfolios with their investment objectives. By using a fundamental factor model, we can see how a growth strategy might be hampered by unintended factor exposures.

  73. BLOG

    Why global small-cap stocks are becoming an important part of institutional portfolios 

    Mar 16, 2017 Raina Oberoi

    Global Investing , Factor Investing

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    Institutional investors worldwide traditionally have tended to focus on the stocks of larger companies, finding them less risky, more liquid and offering greater investment capacity than small-cap stocks. But asset owners and managers increasingly are allocating strategically to the small-cap equity segment as part of their global equity portfolios i.e., via an “all-cap” approach.

  74. BLOG

    Breaking Up is Hard to Do: Brexit and Institutional Portfolios 

    Mar 15, 2017 Thomas Verbraken

    Risk Management

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    The United Kingdom is about to begin negotiations over its exit from the European Union. Though the process could take up to two years, the triggering of talks leaves institutional investors to assess how Brexit, at least at the outset of negotiations, may affect their portfolios.

  75. BLOG

    What do rising interest rates mean for minimum volatility strategies? 

    Mar 13, 2017 Zhen Wei

    Factors

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    Minimum volatility strategies have historically delivered above-average returns with below-average risk, especially in volatile market environments as have occurred in recent years. During this period, the world also has experienced low interest rates.

  76. BLOG

    ASEAN: An Overlooked Emerging Markets Story 

    Mar 8, 2017 Eugene Lim

    Emerging Markets

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    When institutional investors think about Asia’s emerging markets, they tend to pay more attention to the larger and more industrialized economies such as China, Korea and Taiwan. Proportionally less attention is paid to the smaller Southeast Asia nations such as Singapore, Indonesia and Malaysia. Yet these countries, which together with Thailand and the Philippines constitute the MSCI AC ASEAN Index, have returned 5.6% a year (gross) over the 10-year period ending Dec. 30, 2016.

  77. BLOG

    Are convertible bonds more like equities? 

    Mar 2, 2017 Andy Sparks

    Fixed Income

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    Convertible bonds have “bonds” in their name but in reality they are complicated corporate securities with risk characteristics that often have little to do with straight bonds. Are they more like stocks or bonds? And how can investors evaluate and model them?

  78. BLOG

    Time to Rethink Emerging-Markets Allocations? 

    Feb 23, 2017 Raman Aylur Subramanian

    Emerging Markets

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    Over the last five years, the risk and return profile of emerging markets has started to resemble that of developed markets. That leaves many large asset owners to ask how to structure mandates to take advantage of the variation in the behavior of emerging markets.

  79. BLOG

    How to Integrate ESG Without Sacrificing Diversification 

    Feb 8, 2017 Laura Nishikawa

    ESG Research , Global Investing

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    As institutional equity investors increasingly think about the long term, they may adjust their portfolios to accommodate environmental, social and governance (ESG) concerns in their investment decision-making processes. That can be particularly challenging for the largest investors, such as pension funds and endowments, whose portfolios span the entire equity market.

  80. BLOG

    The Search for Yield: Leveraged Loans vs. High-Yield Bonds as Interest Rates Rise 

    Jan 19, 2017 Peter Shepard

    Fixed Income

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    The low interest rate environment continues to send institutional investors on a search for yield. But with the Federal Reserve signaling an increased pace of tightening in 2017, many are reducing interest rate exposure and seeking higher yields in credit instruments.

  81. BLOG

    Return of the Cyclicals 

    Jan 19, 2017 Raman Aylur Subramanian

    Factors

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    U.S. equity investors in 2016 experienced a roller coaster ride. The U.K.’s vote to leave the European Union and the U.S. presidential election each resulted in sharp market moves. Together, the two events contributed to a shift in the underlying fabric of equity markets starting in the second half of the year.

  82. BLOG

    Allocating to emerging markets: It depends on your view of the world 

    Dec 12, 2016 Sebastien Lieblich

    Emerging Markets

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    Emerging market equities have declined 5.4% since the U.S. elections on Nov. 8 (measured in U.S. dollars).¹ But they remain a significant source of the world’s stock-market capitalization and economic activity, constituting 11% of the global investable universe and 40% of the world’s wealth. How much do institutional investors want to allocate to this portion of the market?

  83. BLOG

    What the rise in policy uncertainty might mean for institutional portfolios 

    Dec 8, 2016 Raghu Suryanarayanan

    Risk Management

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    A year that was marked by the United Kingdom’s vote to leave the European Union and the United States’ surprise election of Donald J. Trump as president is ending with widespread uncertainty over systemic and geopolitical risk, inflation and economic growth. How can institutional investors address unconventional monetary and fiscal policies worldwide?

  84. BLOG

    What do Factors Tell us About Regime Change in U.S. Stocks Following the Election? 

    Dec 2, 2016 Raman Aylur Subramanian

    Factors

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    Pro-cyclical factors are in, defensive factors are out. That, in a nutshell, describes how the U.S. equity market has responded to the presidential election.

  85. BLOG

    What might U.S. trade barriers mean for global equities? 

    Dec 2, 2016 Chin Ping Chia

    Economic Exposure

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    Emerging market equities underperformed U.S. stocks by 7.2 percentage points (as of Nov. 30) following Donald Trump’s election as president, based partly on the expectation that the president-elect is likely to pursue a series of protectionist policies that could hurt many export-dependent emerging nations. Stocks in developed economies (ex-U.S.) also underperformed those in the U.S., albeit by a smaller margin (3.8 percentage points).

  86. BLOG

    Integrating ESG into Factor Portfolios 

    Nov 30, 2016 Dimitris Melas

    ESG Research , Factors

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    Over the past decade, many long-term institutional investors have incorporated Environmental, Social and Governance (ESG) considerations into their portfolios, by creating segregated ESG mandates or by incorporating ESG criteria across the entire portfolio.

  87. BLOG

    How a Banking Crisis in Italy Could Impair European and Global Portfolios 

    Nov 15, 2016 Carlo Acerbi

    Integrated Risk Management

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    Markets fear that a defeat of constitutional reforms proposed in Italy’s Dec. 4 referendum would end the government of Prime Minister Matteo Renzi, who has promised to resign if they fail. The reforms aim to make it easier for governments to implement their programs. A failed referendum could produce political instability, which could complicate efforts to recapitalize the country’s struggling banks, impede the government’s ability to reform the economy for the long term and increase risk across Europe, already engulfed by a banking crisis.

  88. BLOG

    The SEC’s New Liquidity Risk Rules: Now Comes the Challenge 

    Nov 10, 2016 Carlo Acerbi

    Risk Management

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    The U.S. Securities and Exchange Commission’s new liquidity rules mark the most ambitious ever initiative against investor dilution — the unfair costs an investor may suffer when assets are not liquid enough to meet redemption requests.

  89. BLOG

    How Pure is your Value? 

    Oct 25, 2016 Raman Aylur Subramanian

    Factors

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    Among the reasons that value firms sell at a discount to their intrinsic worth is that they tend to be more sensitive to shocks in gross domestic product compared with their growth counterparts. That may occur because of leverage, deployments of capital, risk-taking or something else that constrains value firms' abiliity to adapt to macroeconomic stresses.

  90. BLOG

    A Look at MSCI’s Emerging Markets Index and China A-shares 

    Oct 24, 2016 Chin Ping Chia

    Global Investing

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    During our consultations on whether to add China A-shares to MSCI’s Emerging Markets Index, some institutional investors asked what full inclusion might mean for the index and the asset class. Given China’s already-significant weight in the index, would the addition of shares of local Chinese companies, even if years away, reduce diversification of the index and render the asset class irrelevant?

  91. BLOG

    バリュエーションは将来のファクターのリターンを説明するのか?(しないのか?) 

    Oct 10, 2016 Chin Ping Chia

    Factors

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    低ボラティリティ・ファクターの相対的バリュエーションの上昇、そして同時に起きているバリュー・ファクターの低下により、機関投資家は自らのエクスポージャーをシステマティックな戦略にタイミングを取って変更することに意味があるかどうか悩んでいる。要するに、投資家がバリューに資金を振り向けけたい思うほど、バリューは(市場対比で)割安になっているのか?そして、相対的に割高な低ボラティリティから、投資家は資金を引き上げるべきか?ということである。

  92. BLOG

    How Low Interest Rates May Impact your Portfolio 

    Oct 6, 2016 Carlo Acerbi

    Risk Management , Global Investing , Integrated Risk Management

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    Slow growth and a shortage of safe assets have led major central banks to maintain monetary policies that include short-term interest rates near or below zero. The policies, which aim to encourage businesses and consumers to borrow and spend, have lowered bond yields, distorted yield curves, shifted the composition of central banks’ balance sheets toward riskier assets and sent savers in search of yield. The persistence of low growth and a lack of inflation also have led investors to wonder whether such policies still pack any punch.

  93. BLOG

    Which Factors Are More Time-Sensitive? 

    Sep 28, 2016 Dimitris Melas

    Factors

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    Hedge funds and other investors who manage portfolios that rebalance frequently face a challenge when it comes to the use of factors for trading, hedging and risk monitoring: Which factors tend to break down over time?

  94. BLOG

    What a Fed Rate Hike May Mean for U.S. Equity Portfolios 

    Sep 28, 2016 Raman Aylur Subramanian

    Equity Themes , Factors

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    With the U.S. Federal Reserve expected to raise interest rates before the end of the year, institutional investors are focused on how an increase may impact their portfolios, including how different equity style and industry factors perform in different interest-rate regimes.

  95. BLOG

    Insight into the emerging markets rally 

    Sep 27, 2016 Raman Aylur Subramanian

    Emerging Markets , Global Investing

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    Apart from a recent swoon spurred by fears that the U.S. Federal Reserve could raise rates, it has been a summer of love for investment in emerging markets.

  96. BLOG

    Building Predictive Stress Tests: MSCI’s Best Practices 

    Sep 19, 2016 Carlo Acerbi

    Integrated Risk Management

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    Stress testing has experienced a resurgence of interest in the wake of the 2008 financial crisis. The lessons from that period, perhaps more than any previous one, taught the risk industry that expert judgment and economic insight may help investors anticipate and avoid exposure to major financial downturns by using forward-looking models.

  97. BLOG

    What Valuations Tell Us (and don’t tell us) About Future Factor Returns 

    Sep 14, 2016 Chin Ping Chia

    Factors

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    A rise in relative valuation of the low volatility factor and a concurrent fall-off in the value factor have led some institutional investors to wonder anew whether it makes sense to time their exposures to systematic strategies. In short, has value become so cheap (relative to the market) that investors may want to pivot toward it? And does a relatively rich valuation for minimum volatility tell investors it’s time to back off?

  98. BLOG

    Why Economic Exposure Matters 

    Jul 21, 2016 Dimitris Melas

    Economic Exposure

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    Investors with global portfolios need to know where the companies they invest in are domiciled. It is equally important, however, for them to know where those companies earn their revenue. Data from MSCI shows that the geographic distribution of companies’ revenues can have a significant impact on their stock prices.

  99. BLOG

    How to think bigger about small cap investing 

    Jul 15, 2016 Raman Aylur Subramanian

    Global Investing , Factor Investing

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    Investors who allocate to small-cap stocks can use either a benchmark weighted according to the market value of companies that constitute it or indexes that track the performance of factors such as size. But all small-cap indexes are not the same.

  100. BLOG

    How the Brexit Vote may Impact your Portfolio 

    Jun 24, 2016 Dimitris Melas

    Risk Management

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    While the long-term consequences for investors of the decision by U.K. voters to leave the European Union may take time to unfold, our analysis of the months that preceded the referendum shows that tremors from Brexit already have stirred up markets and upped systemic risk for Britain compared with developed markets generally. The question now is whether the waves will continue and how they may (or may not) intensify.

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