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Could Factors Have Explained Cryptocurrency Risk? 

Factor Investing

As cryptocurrencies rise in popularity as investment vehicles, the need for standardized tools for this market increases as well. We created a multifactor model to measure whether factors important for equity markets were also important for crypto.

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Hedging Inflation with Equities 

Global Investing , Factor Investing

Equities have traditionally been viewed as a hedge against inflation, based on the assumption that companies’ revenues adjust for inflation over time. But what has been the short-term impact on equity portfolios?

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Active-Management Opportunities in a Disperse Market 

Factor Investing

Disperse markets have historically provided opportunities for active managers to outperform their respective benchmarks. We showed that, based on historical trends, CSV helped shed light on identifying where the dispersion was greatest.

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Eyeing the Crowds from Multiple Perspectives 

Factor Investing

We observed historically notable crowding across factors, industries and stocks through the first half of 2021. Examining crowding from multiple perspectives and incorporating multiple data elements provides investors a more holistic view. 

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Factors in Focus: Go with the Flow? 

Factor Investing

In the latest edition of Factors in Focus, we look at flows into equity factor ETFs and whether it has been profitable, historically, to follow the money, along with our analysis of factor and factor-index performance over the second quarter.

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Purifying Value 

Factor Investing

Unintended exposure to non-value factors was a large contributor to value’s period of underperformance. We investigate value-portfolio construction when controlling for these exposures while maintaining maximum exposure to value factors.

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Escaping to Equities for Yield 

Factor Investing

In today’s low-rate world, some investors shifted toward historically higher-yielding equities. For others, especially in the insurance industry, the greater risk limited their ability to do so. Was a minimum-variance equity approach a viable option?

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Momentum on a Value Hunt 

Global Investing , Factor Investing

Momentum, by definition, rotates into securities with recent outperformance. That said, investors who view value and momentum as contra-signals may have questions about the value-momentum convergence and the divergence of momentum and growth.

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The Theory of (Value) Relativity 

Factor Investing

Whether constructing a fundamental factor model, a value strategy or a value index, valuation ratios need context. Time-series and cross-sectional approaches each have pros and cons. But combining the two may have presented a clearer picture. 

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Including Microcaps in Benchmark Indexes: Japan vs. US 

Equity Themes , Global Investing , Factor Investing

Selecting an equity benchmark may mean balancing market coverage and investability. For example, exhaustive coverage may include microcap stocks, with lower liquidity and investment capacity. But excluding them may reduce low-size-premium exposure.

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Factors in Focus: Value Springs into Action 

Factor Indexes , Factor Investing

Value has historically outperformed in economic recoveries. With the reopening of the global economy we examined value’s performance against other factors, and exposures from our adaptive multi-factor model at the end of Q1. 

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Reopening Economies and the Resurgence in Value 

Factor Indexes , Global Investing , Factor Investing

After 15 years of challenging performance, many have asked if value is still a valid investment strategy. But the reopening of the global economy following vaccination rollouts has reignited interest across stocks, sectors, countries and regions.

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Value-Performance Anxiety 

Global Investing , Factor Investing

Despite a recent performance lift, many still ask whether the value factor is broken. We analyze the reasons behind its underperformance and start exploring the potential of updates to value definitions and approaches to value-portfolio construction.

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The Pace of Fast Change: Growth vs. Thematic Investing 

Factor Indexes , Factors , Global Investing , Factor Investing

Investors considering thematic investments to gain exposure to firms whose fortunes may not be captured by fundamental growth measures, may ask: What are the key opportunities – and challenges – that distinguish thematic from growth investing?

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Is There a Hedge-Fund-Crowding Factor? 

Factor Investing

Hedge funds held heavy, relatively illiquid short positions in crowded stocks before the January 2021 short squeeze. We created a risk factor that added explanatory power and may provide insights into potential short squeezes and other risks.

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Are Growth and Value Indexes Still in Style? 

Factor Investing , Risk Management , Global Investing

Growth and value indexes were created in the 1980s as finer tools than market-cap indexes to measure the performance of growth and value funds. Are style-specific indexes still a relevant choice to use as benchmarks for these funds?

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Factoring in ESG 

ESG Research , Factor Investing , Factors

How much does ESG contribute to portfolio risk and return? We looked at whether ESG performance was influenced by other factors or helped explain returns as a factor in its own right, using the MSCI Global Equity Factor Model + ESG.

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Finding the Sentiment Hidden in Regulatory Filings 

Factor Investing

Using natural language processing techniques, we constructed a sentiment factor that quantifies changes in the tone and content of company filings, and may be an indicator of future risks facing a company.

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Are (Stock) Bubbles Rising? 

Factor Investing

How does one identify or quantify a bubble? We propose a framework for assessing the “bubbliness” of stocks and portfolios, rooted in the idea that bubbles are driven by the same forces, and share characteristics with crowded trades.

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Carrying on Through a Crisis, with Factors 

Factor Investing , Risk Management , Fixed Income

Factors have long had a place in constructing equity portfolios, but investors increasingly use factors in sovereign and corporate bonds, commodities and currencies. Which non-equity factors have been the best performers coming out of recent crises, and why?

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Factors in Focus: Val-come Back! Shifting Factors as the Cycle Turns 

Factor Investing

In 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 

Factor Investing , ESG Research

Telehealth 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 

Factor Investing , Risk Management , ESG Research

To 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? 

Factor Indexes , Factor Investing , Factors

Good 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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Are Momentum’s Wings Finally Starting to Melt? 

Factor Investing , Factors

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 

Factor Investing , Factor Indexes , Factors , Risk Management

Single-factor portfolios seek high exposure to a target factor and limited exposure to non-target ones. We assess the impact that common portfolio weighting schemes have on these exposures, as well as on portfolio efficiency, concentration and investability.

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Using Factors As a Magnifying Glass for Equities 

Factor Indexes , Factor Investing , Factors

Factors 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 

Factor Investing , Global Investing , Risk Management

Global 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 

Factor Indexes , Factor Investing , Factors

How 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 

Factor Investing , Risk Management , Global Investing

When 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 

Factor Indexes , Factor Investing , Factors

Growth 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 

ESG Research , Factor Indexes , Factor Investing , Factors , Fixed Income , Risk Management

COVID-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 

Factor Investing , Factors

It’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? 

Factor Investing , Risk Management

As 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? 

Factor Investing , Global Investing

Building 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 

Factors , Factor Investing

Given 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 

Factor Indexes , Factor Investing , Global Investing

Though 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 

Factor Investing , Factors , Risk Management

How 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 

Factor Indexes , Factor Investing , Factors

Can 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 

Factor Investing , Factor Indexes , Factors

While 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? 

Emerging Markets , Factor Indexes , Factor Investing , Factors , Global Investing

Whether 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 

Factor Indexes , Factor Investing , Factors , Fixed Income

We 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 

Factor Investing , Global Investing

Fear 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 

Economic Exposure , Emerging Markets , Factor Investing , Fixed Income , Global Investing , Risk Management

The 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? 

Factor Indexes , Factor Investing , Factors , Fixed Income , Risk Management

Factors have gained popularity in equity investing for providing insight into the key drivers of portfolio risk and returns. Did tilting hypothetical fixed-income portfolios toward some bond-specific factors benefit investors?

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Factors in Focus: Will 2020 vision sharpen exposures? 

Factor Indexes , Factor Investing , Factors

Some 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 

Factor Indexes , Factor Investing , Factors

As 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? 

Factor Investing , Factors , Risk Management

Company 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 

Factor Investing , Factors , Risk Management

During 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? 

Factor Indexes , Factor Investing , Factors , Global Investing

Value 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 

Factor Indexes , Factor Investing , Factors

Technological 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 

ESG Research , Factor Investing , Models/Client Cases , Risk Management

Despite 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 

Factor Investing , Factors , Models/Client Cases , Risk Management

The 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 

Factor Investing , Factor Research Group , Factors

Growth 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? 

Factor Investing , Models/Client Cases , Factors

The 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 

Factor Investing , Models/Client Cases , Risk Management

On 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? 

Factor Investing , Factors

When 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 

Factor Research Group , Factor Investing , Factors

Among 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 

Factor Investing , Factor Research Group , Factors

We 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 

Factor Investing , Factors

The 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 

Emerging Markets , Factor Investing , Global Investing

Commonly 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 

Factor Indexes , Factor Investing

Foreign 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. 

Factors , Global Investing , Factor Investing

We 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 

Models/Client Cases , ESG Research , Factor Investing

There 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 

Fixed Income , Global Investing , Factor Investing

Venezuela 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 

Factors , Factor Research Group , Factor Investing

As 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 

Factors , Factor Research Group , Factor Investing

As 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? 

Factors , Factor Research Group , Factor Investing

Early 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? 

Factor Indexes , Factors , Factor Investing

As 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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Beaten-down beta 

Factor Investing

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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Factor investing goes multi-asset class 

Factor Indexes , Factors , Factor Investing

Factor 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 

Models/Client Cases , Global Investing , Factor Investing

Some 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 

Global Investing , Factor Investing

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.

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Sector investing in China 

Emerging Markets , Global Investing , Factor Investing

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.

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Which factors mattered in China? 

Models/Client Cases , Global Investing , Factor Investing

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?

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Equity markets in October – Has the tide turned? 

Models/Client Cases , Factor Indexes , Factor Investing

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?

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What drives the capacity of factor index strategies? 

Factor Indexes , Factors , Factor Investing

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.

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Did FAANG stocks lead the US stock market drop? 

Factor Investing

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?

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How the low volatility factor has performed in China A shares 

Global Investing , Factor Investing

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.

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How can active managers add factors to the portfolio? 

Factors , Factor Investing

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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Weighty matters: Going beyond stock-picking 

Factor Investing

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? 

Models/Client Cases , Factor Indexes , Factor Investing

The 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? 

Models/Client Cases , Integrated Risk Management , Factor Investing

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?

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All FAANGs are not created equal 

Factors , Factor Investing

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? 

Factor Indexes , Factors , Factor Investing

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.

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Can your investment strategy work with China A shares? 

Global Investing , Factor Investing

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.

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

Factors , Factor Investing

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?

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Do factors stand up to FAANG? 

Factors , Factor Investing

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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Understanding Factor Exposures When Markets Become Volatile 

Factors , Factor Investing

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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Creating a common language for factor investing 

Factor Investing

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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Improving stock selection in the age of big data 

Factors , Factor Investing

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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Using factors in international investing 

Factors , Factor Investing

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 

Factor Indexes , ESG Research , Factors , Factor Investing

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.

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Why Are Small Caps Different? 

Global Investing , Factor Investing

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?

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Time to Revisit Fundamentals of Quality? 

Factor Investing

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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Measuring the Impact of Factors 

Factors , Factor Investing

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 

Global Investing , Factor Investing

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

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

Global Investing , Factor Investing

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.

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How to think bigger about small cap investing 

Global Investing , Factor Investing

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.

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Using Systematic Equity Strategies 

Factor Investing

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.