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Introducing Profitability: A Systematic Equity Strategy Factor

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, Research Paper, Asset Managers (Quant or Fundamental), KARLA Vikas, CELIS Christian, general

In this Research Insight, we introduce Profitability, one of the Systematic Equity Strategy (SES) Factors modeled by MSCI Equity Analytics Research. This paper finds that in periods of severe volatility and even during market declines, the Profitability factor had strong positive returns in our long-term study. In such market environments, current profits may take on paramount importance, with projected, longer-term revenues taking a backseat. Profitability has historically been a potential hedge to the broader market due to a sizable and persistent negative correlation to the market.

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Introducing Profitability - A Systematic Equity Strategy Factor