Efficient Multi-factor Indexing and Concentrated Markets: Introducing the MSCI Core Multiple-Factor Indexes
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Recent years have not been easy for factor investors. The post-COVID bull market, rising market concentration and the dominance of mega-cap technology stocks created conditions in which many single-factor strategies underperformed the market.
As diversification across style factors weakened and active risk rose, traditional multi-factor approaches struggled to keep pace — echoing research showing that factor premia can be cyclical and regime-dependent.
Against this backdrop, MSCI leveraged its long experience in factor-index design to develop the MSCI Core Multi-Factor (CMF) Index, intended to strengthen diversification, control specific risk and refine factor definitions. The CMF Index takes a bottom-up optimization approach, directly managing exposures to value, momentum and quality while constraining total tracking error, market beta and idiosyncratic risk. This design ensures that performance reflects deliberate, systematic factor tilts rather than unintended residual positions.
An important innovation of the CMF framework is a revised momentum signal that combines traditional price-based measures with analyst sentiment, capturing shifts in market expectations more effectively. Over the 2000–2025 period, the CMF Index delivered robust outperformance across regions — exceeding 2% annualized excess returns in global and emerging markets, and 1.4% in the U.S. — while maintaining controlled risk and consistent performance across market regimes.
Data period: Dec. 29, 2000 to Aug. 29, 2025. Gross returns annualized in USD. Monthly averages of active exposure relative to the respective parent index are reported.
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