Factor Investing

Our research has identified factors that have historically earned a persistent premium over time. These factors can be can be represented by factor indexes representing value, quality, momentum, dividend yield, momentum and low size. With insights on more than 40 years of factor data, our work informs effective risk modelling and investment management practices.


 

Featured research papers and Blog posts


Is There an Options Sentiment Factor?

Research Paper - We examine the trading activity and pricing structure in the equity options market to infer the sentiment of options traders on the underlying equity. We find that metrics constructed from the level of options trading activity relative to the underlying stock and from comparing the pricing of puts relative to calls at various moneyness levels have implications for the cross section of stock returns. Importantly, we also find that the information in options sentiment is additive and orthogonal to what is explained by other common style factors such as value and momentum, or by other measures of sentiment such as those derived from short interest or analyst revisions.


Weighty matters: Going beyond stock-picking

Blog Post - Good stock selection is often at the core of a successful active equity manager’s strategy. Identifying the appropriate weighting of the stock – the portfolio construction piece of the puzzle – may be a secondary consideration. Can reweighting stocks be combined with traditional stock selection without disturbing the underlying investment process?


Is momentum a crowded trade that is starting to unwind?

Blog Post - Is momentum a crowded trade that has started to unwind? While our crowding model scores for momentum are not in bubble territory, they are at a level where we have previously observed elevated risks of drawdowns and deteriorating performance.


Equity valuations resist running with the bulls

Blog Post - The longest U.S. bull market in history has led the way for strong global equity returns over the 10 years since the financial crisis. But what about valuations? They are high, but are not at extreme levels. What’s more, varying valuation characteristics across regions, sectors and factors may create potential investment opportunities.


All FAANGs are not created equal

Blog Post - Commonly grouped as tech stocks or growth companies, it seems reasonable to assume that FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) share many characteristics. However, when we used MSCI FaCS to examine them through the lens of performance-driving factors, we found their characteristics were far from homogeneous.


What is going on with factor returns?

Blog Post - 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.


Can your investment strategy work with China A shares?

Blog Post - 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. 


Vive la Différence: Active Factor Strategies in China A Shares

Research Paper - Can factor insights be applied to construct equity portfolios in the China A shares market? With the partial inclusion of China A shares in the MSCI Emerging Markets Index, we explore whether the China A shares market has distinctive characteristics that lend themselves to factor investing strategies.

MSCI Factor Investing Webinar Series

We discuss the evolution of factor investing, look at markets in 2016 through the lens of factor investing and conclude with a deep dive into the developing area of dynamic factor allocation.

FLIGHT TO QUALITY

The quality factor has demonstrated long-term outperformance against the market, but it has not received the same attention as the value, size or momentum factors.

Finding Value: Understanding Factor Investing

The perennial appeal of value investing is based on the excellent long-term performance of global value stocks. Investors today use various approaches to identify the exposure of stocks with “value” characteristics that help explain risk and return.