Research Paper

The quality factor has worked best in a "risk-off" market environment. Yet quality is not as well understood as other factors, despite being deeply embedded in Benjamin Graham’s value investing philosophy. In this Research Insight, we argue that the quality of a company can generally be evaluated along five key dimensions: Profitability, Earnings Quality, Financial Leverage, Asset Growth and Corporate Governance. Investors can replicate a variety of quality indexes, depending on their...

Indexes

Research Paper

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.  In this Research Insight, we create a common definition of “value” and examine how value strategies can be implemented, in both active and passive portfolios, using three generations of value indexes as examples.

Indexes Factor Indexes Value Weighted

Research Paper

Ever since central banks slashed interest rates in response to the Global Financial Crisis, many institutional and retail investors turned to high dividend-paying equities to meet their needs for income. However, a naïve high-yielding equity strategy can expose itself to various “yield traps,” such as those stemming from temporarily high earnings, high payouts or low stock price. We find that the yield factor has tended to perform well during a structurally low and rising interest rate...

Indexes

Research Paper

The size premium has been widely used in asset allocation and in risk models for decades. However, some academics and practitioners have contested the validity of the size premium. They argue: 1) the size premium has disappeared in the last 20 years and no longer exists; 2) the size premium exists only in the United States and not in other markets; 3) the size premium disappears after filtering out smaller stocks for investability. In this paper, we refute these claims and examine ways of...

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MSCI Blog

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.

MSCI Blog

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?

MSCI Blog

Let’s look at how factor allocations fit in the traditional institutional portfolio setting. Factor investing utilizing indexes can be viewed as active decisions implemented through passive replication. As such, factor allocations should be tailored to each institution.

MSCI Blog

Institutional investors are increasingly gravitating towards multi-factor allocations as the preferred approach to factor investing. But how should factor indexes be combined?