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Maximizing Factor Exposure While Controlling Volatility

If investors want to maximize their exposure to underlying factors while maintaining control over the risk profile of their portfolios they need to keep volatility close to market level. We recently launched the MSCI Diversified Multiple-Factor Indexes. These indexes combine four well-researched factors — value, momentum, size and quality — with a control mechanism designed to keep volatility in line with the market.

We know multi-factor indexes are important for investors seeking diversified exposure to factors that have historically generated superior returns. However investors may want to diversify away from just a single factor without diluting the strength of their exposure to their targeted factors, without structurally changing the risk profile of their portfolios.

By embedding a risk control the MSCI Diversified Multiple-Factor Indexes addresses this need - it significantly diversifies the risk characteristics of the corresponding single-factor indexes, providing high, persistent and controllable factor exposures that delivers market-like volatility over time.

Read our research paper to understand how our research experts constructed the index, understand our methodology and factor optimization and see how the index offers diversification performance benefits over single-factor indexes.

Diversified multi-factor benchmarks

Investment strategies seeking factor premia were previously available only through active management. Now, our Factor Indexes offer institutional investors a basis for implementing a transparent and cost-efficient index-based approach to seeking the return premium historically provided by certain active factor-based strategies.

The MSCI Diversified Multiple-Factor Indexes combine MSCI Factor Indexes into a single blended index. Investment strategies seeking factor premiums were previously available only through active management. These innovative indexes are based on parent MSCI indexes, applying standard combinations available from MSCI or customized mixes requested by clients. They aim to maximize exposure to four factors – Value, Momentum, Quality and Low Size – while maintaining a risk profile similar to that of the underlying parent index.

Available benchmarks

The following Diversified Multiple-Factor Indexes, which are based on their respective MSCI parent indexes, are currently available:

  • MSCI ACWI Diversified Multiple-Factor Indexes
  • MSCI Emerging Markets Diversified Multiple-Factor Indexes
  • MSCI USA Diversified Multiple-Factor Indexes
  • MSCI USA Small Cap Diversified Multiple-Factor Indexes
  • MSCI World ex USA Diversified Multiple-Factor Indexes
  • MSCI World ex USA Small Cap Diversified Multiple-Factor Indexes
  • MSCI World Diversified Multiple-Factor Indexes
  • MSCI Europe Diversified Multiple-Factor Indexes
Applications

Our Diversified Multiple Factor Indexes can be used to support:

  • Asset allocation: Adding a factor return component to portfolio strategies.
  • Performance measurement and attribution: Benchmarks factor-driven performance of specific investment strategies, as well as defining factor-based stock universes.
  • Research: A trusted source of data for sell-side research.
  • Investment product development: May be licensed for use as the basis for structured products and other index-linked investment vehicles, such as ETFs and ETNs.

Contact us

Do you want to learn more about Diversified Multiple-Factor Indexes or about any other MSCI product we offer?

RESEARCH INSIGHT

Multi-factor index fund allocations are increasingly becoming the preferred approach to factor investing.

PRESS RELEASE

Research has shown that stocks reflecting certain factors have, over time, provided a higher return than the overall market. MSCI Diversified Multiple-Factor Indexes use Barra risk tools to construct indexes that track the performance of four of these factors while keeping risk at the level of an underlying parent index.

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