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Employing Style Rotation with MSCI’s Systematic Equity Strategy Factors

categories: Portfolio Management Analytics, Americas, EMEAI, Risk Management Analytics, Factor and Risk Modeling, Investing (Investment Management), Performance Analysis, Portfolio Construction and Optimization, Risk Management, Asia Pacific, Asset Owners, Hedge Funds, Equities, Asset Managers (Quant or Fundamental), Product Insight, CHOI Audrey, general

The rise of factor investing and smart beta has made timing factors more relevant than ever. As active investors look for ways to differentiate their strategies from their competition, factor rotation may be another technique to explore.  In this Product Insight, we test style factor rotation methods using the Systematic Equity Strategy (SES) factors modeled by MSCI Equity Analytics Research. Using simulated history, our study found it was possible to anticipate Risk-On and Risk-Off regimes by employing a signal from the Barra risk models. Tilting a strategy towards factors that provided benefits within each regime resulted in a 7.8% annualized return above the MSCI ACWI.

 


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