Extended-lister
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Carrying on Through a Crisis, with Factors
Jan 13, 2021 Andrew DeMond , Manuel RuedaFactor Investing , Risk Management
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Factors in Focus: Val-come Back! Shifting Factors as the Cycle Turns
Jan 6, 2021 Hitendra D Varsani , Waman Virgaonkar Learn MoreIn this two-year-anniversary edition of Factors in Focus, we reflect on the historical relationships between factor returns and macro cycles, which have provided useful information for investors looking to take an active stance on factor exposures based on their outlook.
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The Doctor Is Making House Calls: Capturing Exposure to Telehealth
Dec 16, 2020 Manuel Rueda , Gaurav TrivediFactor Investing , ESG Research
Learn MoreTelehealth has the potential to reduce inequalities in access to care as well as relieve strain on health systems. We tested an approach that combines natural-language processing and MSCI ESG Ratings screens.
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Investor Reaction to US Elections and COVID-Vaccine Progress
Nov 18, 2020 Dimitris Melas , David Lunsford , Andy SparksFactor Investing , Risk Management , ESG Research
Learn MoreTo gauge investor expectations after Joe Biden was declared winner of the U.S. election and good news broke about COVID vaccines, we surveyed 151 U.S.-based financial advisers. We examine the advisers’ views on the next 12 months and markets’ reaction since Election Day.
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Did Size Matter for Small-Cap Outperformance?
Nov 16, 2020 Roman KouzmenkoFactor Indexes , Factor Investing , Factors
Learn MoreGood vaccine news on Nov. 9 drove unusual equity-index and factor returns, including in small caps. The MSCI USA Small Cap Index returned 3.03% that day vs. 0.82% for the MSCI USA Index. Was this due to the size factor, or was there a bigger story?
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Positive vaccine news on Nov. 9 caused big moves in industry and style factors. Those hit hardest this year jumped, while previous high performers slumped. Did this mark new factors leadership and a long-awaited rotation from momentum to value?
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How Portfolio-Weighting Schemes Affected Factor Exposures
Oct 15, 2020 Abhishek Gupta , Ashish Lodh , Subhajit BarmanFactor Investing , Factor Indexes , Factors , Risk Management
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Using Factors As a Magnifying Glass for Equities
Oct 14, 2020 Donald SzeFactor Indexes , Factor Investing , Factors
Learn MoreFactors have been shown to be important systematic sources of risk and return. We examine how factor analysis can help identify investment characteristics that lie beneath the surface of seemingly similar stocks and equity portfolios.
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Factors in Focus: Impact of Inflation on Style Factors
Oct 2, 2020 Hitendra D Varsani , Waman VirgaonkarFactor Investing , Global Investing , Risk Management
Learn MoreGlobal equities continued to rally in Q3, brushing aside fear of a second wave of COVID-19 and a large economic slump. We review what it meant from an equity and fixed-income factor perspective and look at what our models showed headed into Q4
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How to Describe a Factor
Sep 10, 2020 Abhishek Gupta , Ashish Lodh , Subhajit BarmanFactor Indexes , Factor Investing , Factors
Learn MoreHow to define a factor? It’s a challenge for asset owners and wealth managers in evaluating how well factor products meet investment objectives. We found an improved and more robust measure can be formed by combining multiple descriptors.
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Understanding the Industry-Momentum Factor
Aug 19, 2020 Alex Johnson , Simon MinovitskyFactor Investing , Risk Management , Global Investing
Learn MoreWhen COVID-19 first swept through global equity markets, many factors exhibited unprecedented performance swings. How could institutional investors interpret the industry-momentum factor’s moves in the context of the underlying market dynamics?
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Growth Without the Side Effects
Aug 17, 2020 Mehdi AlighanbariFactor Indexes , Factor Investing , Factors
Learn MoreGrowth has sometimes been viewed as the opposite of value. By extending the concept of growth at a reasonable price, we were able to capture the growth premium without it being lost to unintended factor exposures.
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Corporate Bonds Through a Factor and ESG Lens
Jul 20, 2020 Rohit Mendiratta , Hitendra D VarsaniESG Research , Factor Indexes , Factor Investing , Factors , Fixed Income , Risk Management
Learn MoreCOVID-19 has had a profound impact on how companies manage cash flows and liquidity. Bond investors face the possibility of increased leverage, rating downgrades and defaults. Can factors and ESG metrics shed light on these risks?
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Measuring Firms’ Remote-Workforce Abilities
Jul 14, 2020 Howard Zhang , Daniel R. Barrera , Manuel Rueda Learn MoreIt’s clear that some companies were better positioned to take advantage of a remote work environment than others. We built a hypothetical “remote-operation capacity” factor to seek to measure the effect on different firms.
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Factors in Focus: How Trendy Is Your Style Factor?
Jul 6, 2020 Hitendra D Varsani , Waman Virgaonkar , Rohit MendirattaFactor Investing , Risk Management
Learn MoreAs markets rallied worldwide, investors took on high-beta exposure and rotated away from stocks with lower risk. The latest edition of Factors in Focus explores the details.
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Did Value-Factor Exposure Deliver for Value Funds?
Jun 29, 2020 Saurabh Katiyar , Ashish Lodh , Vishad BhalodiaFactor Investing , Global Investing
Learn MoreBuilding on previous MSCI research into the nuanced performance of the value factor, including the impact of sectors and other style factors, we look at how exposure to value drove the performance of actively managed value funds.
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Short Interest Factor Performance in Times of Crisis
Jun 24, 2020 Vipul Jain , Roman Kouzmenko Learn MoreGiven recent short interest factor performance, we asked: What has been the relationship between this factor and large market drawdowns? Were there changes in short selling during COVID-19? Did short-selling bans affect short interest factor performance?
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Outcome-Oriented Factor Investing with a ‘Barbell’ Approach
Jun 1, 2020 Zhen Wei , Shuo XuFactor Indexes , Factor Investing , Global Investing
Learn MoreThough relatively new to wealth investors, index-based factor investing has some similarity to a high-conviction, outcome-oriented approach. We explore combining the two when seeking outcomes such as equity growth, yield enhancement and risk mitigation.
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How Hedge Funds Navigated the Start of COVID-19 Volatility
May 8, 2020 Donald Sze , Navneet KumarFactor Investing , Factors , Risk Management
Learn MoreHow did hedge funds navigate the initial volatility amid COVID-19? Though holdings information is limited, and delayed, we gained insights into their reaction by examining the change in hedge-fund portfolios between the end of January and end of February.
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Hunting a COVID-19 factor
Apr 29, 2020 George Bonne , Jun WangFactor Indexes , Factor Investing , Factors
Learn MoreCan we identify a COVID-19 factor and quantify companies’ exposure to it? We explored three ways to do so — from very simple to more complex methods.
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Resilient stocks during the dog days of March
Apr 17, 2020 Mehdi AlighanbariFactor Investing , Factor Indexes , Factors
Learn MoreWhile many stocks were in the red in mid-March, as COVID-19 and oil-market shocks took hold, some were “redder” than others. We examine global markets to better understand the characteristics of the more resilient stocks during this period.
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Can diversification help weather the coronavirus storm?
Apr 16, 2020 Raina Oberoi , Abhishek Gupta , Jean-Maurice LadureEmerging Markets , Factor Indexes , Factor Investing , Factors , Global Investing
Learn MoreWhether investors include a tactical approach or invest strategically for the long term, diversifying across factors, sectors and geographies has historically played an important role in portfolio construction.
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Factors in Focus: Risk sentiment and factor dynamics in a crisis
Apr 2, 2020 Hitendra D Varsani , Waman Virgaonkar , Rohit MendirattaFactor Indexes , Factor Investing , Factors , Fixed Income
Learn MoreWe analyzed the market effects from COVID-19 and a Saudi Arabia/Russia oil-price war. We also examined – for the first time – credit factor performance. How did the quarter play out? What did our adaptive multi-factor model show as it ended?
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The coronavirus market impact spreads globally
Mar 5, 2020 Jun Wang , Jay Yao , George BonneFactor Investing , Global Investing
Learn MoreFear of a coronavirus pandemic and ensuing economic impacts caused sharp drops in global markets after an initially mild response. We look at recent performance from a factor perspective and how quickly factor returns and volatility reverted in past crises.
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The coronavirus epidemic: Implications for markets
Feb 12, 2020 Zhen Wei , Jun Wang , Thomas VerbrakenEconomic Exposure , Emerging Markets , Factor Investing , Fixed Income , Global Investing , Risk Management
Learn MoreThe toll from the coronavirus has been felt throughout societies, leading to repercussions on the global economy and financial markets. We examine investor impact through markets’ economic exposures to China and factors and by stress testing portfolios.
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Did corporate-credit factors offer a risk-return edge?
Jan 24, 2020 Hitendra D Varsani , Rohit MendirattaFactor Indexes , Factor Investing , Factors , Fixed Income , Risk Management
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Factors in Focus: Will 2020 vision sharpen exposures?
Jan 6, 2020 Waman Virgaonkar , Hitendra D VarsaniFactor Indexes , Factor Investing , Factors
Learn MoreSome global equity markets reached all-time highs and experienced limited bouts of volatility over the course of 2019. But underneath the calm surface, we saw a high degree of dispersion among factors and sectors.
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Factors behind value’s underperformance
Nov 22, 2019 Leon RoisenbergFactor Indexes , Factor Investing , Factors
Learn MoreAs the relationship between U.S. value factors’ exposures and returns deteriorated over the last decade, U.S. momentum’s return patterns improved. We examine the value-momentum relationship and contributions of other style factors to value’s performance.
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Did insider transactions have secrets to tell?
Nov 19, 2019 Vipul Jain , Roman KouzmenkoFactor Investing , Factors , Risk Management
Learn MoreCompany insiders’ trading of their company’s stock is usually subject to strict rules, including public disclosure. Did observing insider transactions provide more information about expected company performance than traditional sources?
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Beware high dividend yield traps
Oct 25, 2019 Jean-Maurice Ladure , Ashish Lodh , Saurabh KatiyarFactor Investing , Factors , Risk Management
Learn MoreDuring low interest-rate, high-volatility environments, some investors have turned to high dividend-paying stocks. However, overly simplistic approaches to selecting dividend-paying securities exposed investors to potential “yield traps.” Could these traps have been avoided?
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Value investing is down. But is it out?
Oct 23, 2019 Anil Rao , Abhishek GuptaFactor Indexes , Factor Investing , Factors , Global Investing
Learn MoreValue stocks generally underperformed the broad U.S. equity market over the past decade — just as they did in the late 1990s. What drove that underperformance? Was it consistent globally? Within U.S. sectors?
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Factors separated fact from fiction
Oct 16, 2019 George BonneFactor Indexes , Factor Investing , Factors
Learn MoreTechnological advances have expanded the application of factors. What was the realm of quantitative investors has become more accessible, bringing greater transparency and potential insight into portfolio characteristics and performance drivers.
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Retire in Monte Carlo? Simulating retirement outcomes
Oct 11, 2019 Anil RaoESG Research , Factor Investing , Models/Client Cases , Risk Management
Learn MoreDespite global equity performance, U.S. DC plan participants may be ill prepared to meet retirement-spending needs. We assessed four equity-allocation scenarios — including an equity multifactor allocation and integration of ESG views — to see which performed best.
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Factors in Focus: Momentum hits a valuation speed bump
Oct 3, 2019 Waman Virgaonkar , Hitendra D VarsaniFactor Investing , Factors , Models/Client Cases , Risk Management
Learn MoreThe momentum-value spread saw one of the largest corrections in history over the summer. What does our model show going forward?
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Growth’s recent outperformance was and wasn’t an anomaly
Sep 20, 2019 Shubhangi Sharma , Mehdi AlighanbariFactor Investing , Factor Research Group , Factors
Learn MoreGrowth strategies have outperformed value strategies in recent years. Is growth’s recent performance an anomaly when we look at it in a long-term context? The answer: It depends on what you mean by a growth strategy.
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Back-to-school (momentum) blues?
Sep 13, 2019 Leon Roisenberg , George BonneFactor Investing , Models/Client Cases , Factors
Learn MoreThe U.S. price momentum factor, which we highlighted for elevated crowding scores and vulnerability to negative performance at the end of June, suffered sizable drawdowns in the first seven trading days of September.
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A smoother ride? Looking at factor-based asset allocation
Sep 3, 2019 Andrea Amato , Chenlu ZhouFactor Investing , Models/Client Cases , Risk Management
Learn MoreOn the surface, holding-based asset allocation appears to produce stability. But is what you see always what you get? We investigate the pros and cons of a factor-based approach.
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Where were the (factor) crowds this summer?
Aug 21, 2019 George Bonne , Leon Roisenberg Learn MoreWhen factors have historically become crowded, they’ve often experienced significant drawdowns in subsequent months. Which factors were relatively crowded at the end of 2018 — and how did they perform in the first half of 2019?
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More than a feeling: Quantifying consumer sentiment
Jul 17, 2019 George Bonne , Rohit MendirattaFactor Research Group , Factor Investing , Factors
Learn MoreAmong a flood of alternative data sources, consumer sentiment based on citations online stood out.
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Factors in Focus: Dynamic short term, strategic long term
Jul 2, 2019 Waman Virgaonkar , Hitendra D VarsaniFactor Investing , Factor Research Group , Factors
Learn MoreWe review factor performance over the second quarter, provide the perspective of a long-term view and look to indications from our adaptive multi-factor model heading into Q3.
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Lessons from Woodford: Shutting the barn door after the horses have bolted
Jun 14, 2019 András Bohák , Roman Kouzmenko , Dimitris Melas Learn MoreThe suspension of the U.K.’s Woodford Equity Income Fund highlights the value of regularly reviewing a portfolio’s factor exposures and liquidity characteristics for signs of style drift or deteriorating ability to redeem shares.
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The rise of fundamental factors in China A shares
Jun 6, 2019 Oleg RubanEmerging Markets , Factor Investing , Global Investing
Learn MoreCommonly held perceptions about China A shares have influenced investors to think factor strategies may not work in the Chinese equity markets. Our research suggests this may be changing.
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Factor investing in Saudi Arabia: size matters
May 7, 2019 Saurabh Katiyar , Neeraj DabakeFactor Indexes , Factor Investing
Learn MoreForeign interest has risen in Saudi Arabia following the easing of foreign-ownership limits. Our analysis shows investors would have benefited by controlling for exposure to small-cap companies.
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Factors in Focus: Risky start. Quality finish.
Apr 2, 2019 Hitendra D Varsani , Waman VirgaonkarFactors , Global Investing , Factor Investing
Learn MoreWe highlight the fast-moving rotation among factors that continued during Q1 2019. As we move into Q2 2019, this framework showed allocation changes in different factors.
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Factors and ESG: the truth behind three myths
Mar 20, 2019 Guillermo CanoModels/Client Cases , ESG Research , Factor Investing
Learn MoreThere are misconceptions of the relationship between factors and ESG issues. We debunked three common myths about ESG, momentum, quality and smaller-cap stocks.
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Venezuela and the Specter of Recovery Risk
Feb 14, 2019 Hamed Faquiryan , Manuel RuedaFixed Income , Global Investing , Factor Investing
Learn MoreVenezuela unfortunately finds itself on the verge of political and economic collapse. From the perspective of investors in the country’s sovereign and corporate bonds, recovery risk is now likely a bigger consideration than default risk.
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What market volatility has meant for factors
Feb 13, 2019 Guillermo CanoFactors , Factor Research Group , Factor Investing
Learn MoreAs investors continue to focus on factor investing in periods of heightened volatility, we ask how volatility has affected factor performance.
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What Fed monetary policy has meant for factors
Feb 6, 2019 Raina Oberoi , Abhishek GuptaFactors , Factor Research Group , Factor Investing
Learn MoreAs interest rates in the U.S. started increasing in late 2015, many investors expressed concerns over the impact that rising rates could have on their investments. However, the tone of the U.S. Federal Reserve (the Fed) shifted from “we’re a long way from neutral” in October last year to a more accommodative stance of “we will be patient” early this year, re-emphasizing that expression at the January 2019 Federal Open Market Committee meeting.
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Should we be surprised by earnings surprises?
Feb 1, 2019 Rohit Mendiratta , George BonneFactors , Factor Research Group , Factor Investing
Learn MoreEarly 2019 earnings season has already contained a number of high-profile surprises, such as Facebooks's, but how predictable are these surprises, and what happens when earnings surprises return to trend?
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What has affected minimum volatility index performance?
Jan 31, 2019 Waman Virgaonkar , Mehdi AlighanbariFactor Indexes , Factors , Factor Investing
Learn MoreAs we head further into 2019, some of last year’s concerns, including market volatility and interest-rate uncertainty, continue to occupy investors’ minds. With the assumption that rates-related concerns continue and uncertainty looms in the global equity markets, the question is how minimum volatility indexes behaved in an environment dominated by these two opposing forces.
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Factors in Focus: Navigating turbulent markets
Jan 8, 2019 Hitendra D Varsani , Vipul JainFactors , Global Investing , Factor Investing
Learn MoreIn this inaugural Factors in Focus, we highlight the fast-moving rotation among factors that may have impacted investor portfolios during 2018, and we look to indications from our adaptive multi-factor framework. As 2019 began, this framework showed an overweight allocation to minimum volatility and quality, an underweight allocation to value, low size and momentum, and a neutral position on high dividend yield relative to a six-factor equally-weighted mix.
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U.S. and international equity markets fell sharply to close out 2018. The MSCI USA Index fell 15% in the fourth quarter alone. (It fell a total of 6% for the year.) As we previously examined, investors began rotating from cyclical sectors and factors to defensive ones in June. This pattern continued, in earnest, until October.
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Equity markets in November – Do pro-cyclical risks remain?
Dec 19, 2018 George Bonne , Leon RoisenbergModels/Client Cases , Factor Indexes , Factor Investing
Learn MoreIn our recent blog, “Equity markets in October – Has the tide turned?” we highlighted a rotation from pro-cyclical to defensive factors and sectors that began in June and accelerated in October. We also found that crowding in the momentum factor in the U.S. remained high, which suggested continued risks to momentum and other pro-cyclical themes.
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Factor investing goes multi-asset class
Dec 11, 2018 Peter ShepardFactor Indexes , Factors , Factor Investing
Learn MoreFactor investing is now going multi-asset class: to factor-based asset allocation and systematic strategy factors that push beyond equity selection.
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What it may mean for Japanese stocks if easy money ends
Nov 22, 2018 Naoya NishimuraModels/Client Cases , Global Investing , Factor Investing
Learn MoreSome observers are concerned that when the Bank of Japan (BOJ) eventually ends its ultra-easy monetary policy, it could hurt the Japanese stock market. Part of this concern stems from the fact that the BOJ’s unconventional monetary policy involves purchasing Japanese exchange-traded funds (ETFs).
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Small cap allocations may not be that straightforward
Nov 20, 2018 Abhishek GuptaGlobal Investing , Factor Investing
Learn MoreThe 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.
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Sector investing in China
Nov 14, 2018 Anil RaoEmerging Markets , Global Investing , Factor Investing
Learn MoreAs 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.
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Which factors mattered in China?
Nov 7, 2018 Oleg RubanModels/Client Cases , Global Investing , Factor Investing
Learn MoreChinese 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?
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Equity markets in October – Has the tide turned?
Nov 5, 2018 Leon Roisenberg , George BonneModels/Client Cases , Factor Indexes , Factor Investing
Learn MoreOctober’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?
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What drives the capacity of factor index strategies?
Oct 30, 2018 Stuart DooleFactor Indexes , Factors , Factor Investing
Learn MoreAs 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.
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Did FAANG stocks lead the US stock market drop?
Oct 15, 2018 Andrei Morozov , Jun Wang Learn MoreFears 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?
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How the low volatility factor has performed in China A shares
Oct 11, 2018 Zhen WeiGlobal Investing , Factor Investing
Learn MoreWhich 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.
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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.
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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.
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Is momentum a crowded trade that is starting to unwind?
Aug 29, 2018 George Bonne , Leon RoisenbergModels/Client Cases , Factor Indexes , Factor Investing
Learn MoreThe momentum factor has been on a tear the last year and a half. Is momentum a crowded trade that has started to unwind?
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Why is Tesla a short-selling target?
Aug 13, 2018 Dimitris Melas , George BonneModels/Client Cases , Integrated Risk Management , Factor Investing
Learn MoreElon 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?
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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.
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What is going on with factor returns?
Jul 18, 2018 Leon RoisenbergFactor Indexes , Factors , Factor Investing
Learn MoreValue 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.
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Can your investment strategy work with China A shares?
Jun 27, 2018 Zhen WeiGlobal Investing , Factor Investing
Learn MoreMany 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.
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Speed bump or regime shift? Deconstructing the recent spike in equity market volatility
Feb 23, 2018 Chenlu Zhou Learn MoreThe 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?
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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?
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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.
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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.
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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.
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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.
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Integrating ESG criteria into factor index construction
Sep 27, 2017 Stuart DooleFactor Indexes , ESG Research , Factors , Factor Investing
Learn MoreInstitutional 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.
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Why Are Small Caps Different?
Sep 18, 2017 Raina OberoiGlobal Investing , Factor Investing
Learn MoreA 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?
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In May, we wrote that despite the generally low market volatility that has prevailed this year, investors were paying relatively high prices for downside protection as measured by “options skew” – the difference in implied volatility between an out-of-the-money option and an at-the-money option. High skew levels indicate heightened fears of “tail risk” – the chances of unlikely but highly consequential events that could sink share prices. Low market volatility largely continued through the summer, but how has options skew behaved – has it fallen to more “normal” levels?
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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.
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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.
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Global small-cap fund capacity: no small matter
Jun 15, 2017 Raina OberoiGlobal Investing , Factor Investing
Learn MoreIn recent years, pension funds around the world increasingly have shed their home bias and made global small-cap allocations.
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It’s been widely reported that equity-market volatility, outside of a mid-May spike, has been oddly low given investor concerns that range from North Korean saber-rattling to the fate of tax cuts proposed by the Trump Administration.
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Integrating Factors in the Investment Process: a Holistic Perspective
May 31, 2017 Oleg Ruban Learn MoreA growing number of institutional investors use factor insights in constructing portfolios, managing risk or allocating capital. However, few investors have adopted a holistic approach to factor investing.
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An Opportunity in Abenomics? Human and Physical Capital
Mar 30, 2017 Chin Ping ChiaESG Research , Factor Investing
Learn MoreSince Prime Minister Shinzo Abe took office in 2012, he has embarked on a series of economic revitalization policies aimed at jostling Japan out of its so-called “lost decades,” the long period of sluggish growth and recurring deflation that followed the collapse of the country’s 1980s bubble economy
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Why global small-cap stocks are becoming an important part of institutional portfolios
Mar 16, 2017 Raina OberoiGlobal Investing , Factor Investing
Learn MoreInstitutional 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.
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For institutional investors, float-adjusted market capitalization weighted indexes remain the tools of choice to implement their passive allocations. Such indexes are used widely as policy and performance benchmarks and as the basis for ETFs and other passive vehicles. Is this use justified or even appropriate? Do benchmark indexes suffer from shortcomings that undermine their suitability in implementing investment strategies?
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The latest salvo in a long-running war of words between active and passive managers came recently from AllianceBernstein in a paper titled “The Silent Road to Serfdom: Why Passive Investing Is Worse Than Marxism.” The paper, which argues that passive investing misallocates capital, reminds me of a round of arguments a few years back between David Smith of the U.K.-based advisory firm, Hargreaves Lansdown, and Jack Bogle, the founder of Vanguard, in which each argued that active or passive managers are parasites.
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How to think bigger about small cap investing
Jul 15, 2016 Raman Aylur SubramanianGlobal Investing , Factor Investing
Learn MoreInvestors 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.
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Top-down managers assess the economic outlook and translate macro views into country and industry portfolio positions. In contrast, bottom-up managers select securities based on a set of common criteria, for example valuations, profitability, growth, quality, yield, as well as company-specific attributes.
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Momentum, the tendency of past winners to continue to do well in the near future, is a pervasive return regularity in equities and across asset classes. It is used both as a signal in alpha models and as a factor in risk models.
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The size premium has been widely used in asset allocation and in risk models for decades. However, some academics and practitioners have refuted the validity of the size premium.
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The falloff in the price of a barrel of oil that began in June 2014 has highlighted how such fluctuations can affect economies and asset prices worldwide.
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As we highlighted in a recent post, minimum volatility strategies have outperformed this year to date amid unrest in financial markets.
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Britain’s leaving the European Union would send the U.K. and Europe into the unknown with possibly major consequences for multi-asset class portfolios.
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Multi-factor strategies highlight benefits of diversification
Mar 14, 2016 Dimitris Melas Learn MoreThe cyclicality of factor strategies means that individual factors can deliver a premium against the market over time but that any one factor can experience periods of underperformance.
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Call it a lost decade. The value factor recently marked 10 years of decline in the U.S.
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The fitfulness of the global recovery has produced quick and unexpected changes in financial markets and handed portfolio managers the challenge of allocating assets amid the market stress.
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Low volatility is one of the few factors that have historically performed well in turbulent markets.
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Momentum, the tendency of past winners to continue to do well in the near future, is used widely in risk models and in quantitative strategies. Recently, momentum has also been the basis for factor indexes aiming to replicate the performance of this pervasive factor.
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Ever since central banks slashed interest rates in response to the Global Financial Crisis, investors have been searching for yield.
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