Research Insight - MSCI DIVERSIFIED MULTIPLE-FACTOR INDEXES
categories: Indexes, Research Paper, MELAS Dimitris, CHIA Chin-Ping, KULKARNI Padmakar, DOOLE Stuart, general
Maximizing Factor Exposure While Controlling Volatility
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.