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Introducing our latest Factor Innovation – MSCI FaCS
Introducing our latest Factor Innovation – MSCI FaCSTM
The FaCS reportInteractive experience powering better investment decisions
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MSCI Factor Classification Standards
Based on MSCI’s Global Equity Factor Model, MSCI FaCS includes 8 Factor Groups, and 16 Factors.
Factor Investing is transforming the way investors construct and manage portfolios. The increasing popularity of Factor Investing can create the need for standards.
MSCI has been at the forefront of driving factor innovation for over 40 years, beginning with Barra, which established a common language to explain risk and return through the lens of factors.
MSCI FaCS and MSCI Factor Box are designed to provide the structure and standardization for evaluating, implementing and reporting factor exposures.
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MSCI FaCS
MSCI FaCS TM
It is well established that Factors have historically been key drivers of risk and return in equity portfolios. Our research (Roisenberg, 2017) suggests that industry, country, currency and style Factors account for approximately 55% of the active return of a sample of approximately 882 actively managed global mutual funds over the September 2003 – December 2016 period. Within the Factor contribution, style Factors made up the largest portion of active returns - 35%.
MSCI FaCS creates a common language and definitions around Factors to be used by a broader audience including asset owners, managers, advisors, consultants, and investors. Investment managers can use the framework to analyze and report Factor characteristics, while investors and consultants can use the data to compare funds using common Factor standard definitions.
MSCI FaCS on Funds
Investors who use factors to help construct and manage portfolios need a common standard in order analyze funds and conduct due diligence. MSCI FaCS on Funds provides further insight into factor exposures and allows investors to use a common language for evaluating and comparing ETFs and Mutual Funds through MSCI FaCS’s 8 Factor Groups.
MSCI Factor Box
The Factor Box is powered by MSCI FaCS, which creates a common language for Factor Investing. The Factor Box provides a visualization designed to easily compare Factor exposures between funds and benchmarks. It includes Factors which have historically demonstrated excess market returns over the long run.
The MSCI Factor Box aims to help investors identify Factor exposures compared to their intended benchmark. This may help investors to make better informed decisions on their fund selection, fund monitoring and holistic portfolio analysis based on their fund exposures and investment objectives.
The FaCS report - ESG
The FaCS report
In the report you’ll navigate the following questions:
- Is technology (i.e. Nasdaq) synonymous with growth as currently marketed today?
- Are FAANG stock’s investment characteristics as homogeneous as currently perceived in the marketplace?
- What is the factor exposure of various sectors as compared to others?
MSCI FaCS Duplicate 1
| Factor Groups | What it is |
|---|---|
| Value Relatively Inexpensive Stocks | Captures excess returns to stocks that have low prices relative to their fundamental value |
| Low Size (Small Cap) | Captures excess returns of smaller firms (by market capitalization) relative to their larger counterparts |
| Momentum Rising Stocks | Reflects excess returns to stocks with stronger past performance |
| Low Volatility Lower Risk Stocks | Captures excess returns to stocks with lower than average volatility, beta, and/or idiosyncratic risk |
| Dividend Yield Cash Flow Paid Out | Captures excess returns to stocks that have higher-than-average dividend yields |
| Quality Sound Balance Sheet Stocks | Captures excess returns to stocks that are characterized by low debt, stable earnings growth, and other “quality” metrics |
| Growth Measure of change in sales and earnings | Measures company growth prospects using historical earnings, sales and predicted earnings |
| Liquidity Size-adjusted trading Volume | Captures common variations in stock trading volumes relative to available shares trading |
Further reading
Creating a common language for factor investing - read the blog
Introducing MSCI FaCS - read the research papers