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Contributions by Padmakar Kulkarni

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  1. Making allocations to individual factors typically requires strong investment beliefs, as factor returns have been cyclical in nature. When weighing the pros and cons of different multi-factor indexed approaches, institutional investors often evaluate both bottom-up or top-down options. We consider the attractions of both, using a bottom-up approach to build a multi-factor index from stocks that are favorably exposed to the value, size, quality and momentum factors, compared with an alternative top-down approach combining single factor indexes. We compare the two approaches in terms of their level of exposure to the target factors as well as their capacity and investability profiles.

  2. Institutional investors are moving toward integrating ESG criteria into their portfolios and their factor allocations in particular. But they face key challenges in doing so: How can they enhance their strategies’ ESG profiles while achieving the desired exposure to their target factors? Our research shows this can be achieved by simultaneously incorporating ESG integration alongside factor exposure targeting in index construction. The MSCI Factor ESG target indexes’ “one-step” approach achieved significant improvement of the ESG profile of a single- or multi-factor index relative to its market-cap-weighted parent with modest or no negative impact on the indexes’ ability to capture factor return premia over the December 2007 to June 2017 study period.

  3. Integrating ESG criteria into equity portfolios raises important portfolio construction questions. For example, what is the impact of ESG on portfolio performance and characteristics? How does it alter the risk profile and the factor exposures of portfolios? How does it affect institutional investors’ ability to pursue their investment strategy?  Our results show that integrating ESG criteria into passive strategies generally improved risk-adjusted performance over the period 2007 to 2016 and tilted the portfolio towards higher quality and lower volatility securities. We then analyzed the effects of ESG integration on passive investing, factor investing (“smart beta”) and active portfolio management.

  4. PAPER

    Research Spotlight - The MSCI Diversified Multi-Factor Indexes 

    May 27, 2015 Padmakar Kulkarni , Dimitris Melas , Stuart Doole , Chin Ping Chia

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    Multi-factor indexes are important tools for institutional investors seeking diversified exposure to factors that have historically generated premia over long horizons. In this Research Spotlight, we examine the new MSCI Diversified Multi-Factor (DMF) Index family, which selects stocks with exposures to the value, momentum, quality and low size factors, while keeping risk at the level of the market.

  5. PAPER

    Research Insight - MSCI DIVERSIFIED MULTIPLE-FACTOR INDEXES 

    May 7, 2015 Padmakar Kulkarni , Stuart Doole , Chin Ping Chia , Dimitris Melas

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    Maximizing Factor Exposure While Controlling Volatility

    May 2015

    Multi-factor indexes are important tools for investors seeking diversified exposure to factors that have historically generated premia over long horizons.  In this Research Insight, we examine the new MSCI Diversified Multiple-Factor (DMF) Index family. These indexes combine four well-researched factors — value, momentum, size and quality — with a control mechanism designed to keep volatility close to the level of the market. We find that the DMF approach historically has allowed for efficient index construction by capturing the intended factor exposures and handling investor constraints. By optimizing exposures, these multi-factor indexes have produced high, persistent and controllable factor exposures from a focused selection of stocks.

  6. PAPER

    Research Spotlight - MSCI Factor Indexes in Perspective: Insights from 40 Years of Data - September 2014 

    Sep 18, 2014 Padmakar Kulkarni , Subramanian Aylur , Mehdi Alighanbari

    Factor and Risk Modeling , Investing (Investment Management) , Performance Analysis , Portfolio Construction and Optimization

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    With Research Spotlight - MSCI Factor Indexes in Perspective:Insights from 40 Years of Data, we launch our new publication called the Research Spotlight. IEach paper in the series, we will focus on the key findings of a longer white paper, summarizing the research for a non-technical audience. While certain readers will be drawn to the longer publication for the full scope of the study, the Research Spotlight affords a quick and focused summary for those interested in a concise overview.

    Until recently, MSCI had calculated 25 years of simulated history for its factor indexes. In this Research Spotlight, we extend the simulated history to 40 years, providing new insights into the behavior of factor indexes over various time periods. We look at factor index behavior over various time frames; the changes in the correlation between factor returns over this period; historical variations in valuation of factor indexes and their exposure to GICS sectors. We also use IndexMetrics, MSCI's analytical framework, to investigate various characteristics of factor indexes, such as risk, return, liquidity, investability and cost. This part contains supplementary data only.

  7. PAPER

    Research Insight - Factor Indexes in Perspective: Insights from 40 Years of Data Part II: Supplementary Materials - September 2014 

    Sep 8, 2014 Subramanian Aylur , Mehdi Alighanbari , Padmakar Kulkarni

    Factor and Risk Modeling , Investing (Investment Management) , Performance Analysis , Portfolio Construction and Optimization

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    Until recently, MSCI had calculated 25 years of simulated history for its factor indexes. In this Research Insight, we extend the simulated history to 40 years, providing new insights into the behavior of factor indexes over various time periods. We look at factor index behavior over various time frames; the changes in the correlation between factor returns over this period; historical variations in valuation of factor indexes and their exposure to GICS sectors. We also use IndexMetrics, MSCI's analytical framework, to investigate various characteristics of factor indexes, such as risk, return, liquidity, investability and cost. This part contains supplementary data only.

  8. PAPER

    Research Insight - Factor Indexes in Perspective: Insights from 40 Years of Data Part I: Study - September 2014 

    Sep 8, 2014 Subramanian Aylur , Mehdi Alighanbari , Padmakar Kulkarni

    Factor and Risk Modeling , Investing (Investment Management) , Performance Analysis , Portfolio Construction and Optimization

    Download Document

    Until recently, MSCI had calculated 25 years of simulated history for its factor indexes. In this Research Insight, we extend the simulated history to 40 years, providing new insights into the behavior of factor indexes over various time periods. We look at factor index behavior over various time frames; the changes in the correlation between factor returns over this period; historical variations in valuation of factor indexes and their exposure to GICS sectors. We also use IndexMetrics, MSCI's analytical framework, to investigate various characteristics of factor indexes, such as risk, return, liquidity, investability and cost.

  9. MSCI Value Weighted Indices are systematic indices that aim to reflect the value premium by employing an alternative weighting scheme that tilts the index towards stocks with lower valuation ratios. In this paper, we review the theoretical aspects of value weighted indices and through empirical studies we discuss the important facets of index construction that underpin the design of MSCI Value Weighted Indices. They are based on an objective and transparent methodology by which all the constituents of a standard MSCI parent index are re-weighted using four common accounting measures: book value, sales, earnings and cash earnings -- thereby adding a value tilt to the parent MSCI index towards stocks with relatively lower valuation ratios. MSCI Value Weighted Indices are complementary to capitalization weighted indices and could serve as tools in strategic asset allocation to enable investors to gain exposure to market beta with a value tilt.

     

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