Factor Investing

Our research has identified factors that have historically earned a persistent premium over time. These factors can be can be represented by factor indexes representing value, quality, momentum, dividend yield, momentum and low size. With insights on more than 40 years of factor data, our work informs effective risk modelling and investment management practices.


 

Featured research papers and Blog posts


Q1 2019: NAVIGATING TURBULENT MARKETS

Blog Post - In this inaugural edition of Factors in Focus, we highlight the fast-moving rotation among factors during 2018 and look to the indications from our adaptive multi-factor framework as 2019 began.


BEATEN-DOWN BETA

Blog Post - Equity markets fell sharply to close out 2018. The MSCI USA Index fell 15% in the fourth quarter alone. The performance of one factor, beta, stood out, having its fifth worst quarter since 1974. What do these drawdowns reveal about investor behavior? Were they limited to the U.S.? And, what types of firms felt the largest impact?


THE MSCI MINIMUM VOLATILITY INDEXES: 10 YEARS ON

Research Paper - Do indexes live up to their backtests? We contrasted 10 years of live data for the MSCI Minimum Volatility Indexes with the previous 10 years of backtesting, investigating changes in the indexes’ behavior before and after launch across different regions. We also answered some of the most common questions clients have asked.


Factor investing goes multi-asset class

Blog Post - Factor investing’s disruptive effects were first felt in equities; rules-based factor strategies ate into the domain of stock pickers and created low-cost opportunities for asset owners. Now, the disruption continues. Factor investing is going multi-asset class: to factor-based asset allocation and systematic strategy factors that push beyond equity selection.


What it may mean for Japanese stocks if easy money ends

Blog Post - Some observers are concerned that when the Bank of Japan (BOJ) eventually ends its ultra-easy monetary policy, it could hurt the Japanese stock market. We investigate, modelling two hypothetical scenarios and the role the minimum volatility factor might play in mitigating any pain.


Small cap allocations may not be that straightforward

Blog Post - The low size factor, or the premium that has been historically realized by investing in smaller sized companies over longer time periods, forms an integral component of many institutional portfolios. However, investors can choose different ways to making a low size allocation.


Best Practices in Factor Research and Factor Models

Research Paper - We examine the trading activity and pricing structure in the equity options market to infer the sentiment of options traders on the underlying equity. We find that metrics constructed from the level of options trading activity relative to the underlying stock and from comparing the pricing of puts relative to calls at various moneyness levels have implications for the cross section of stock returns. Importantly, we also find that the information in options sentiment is additive and orthogonal to what is explained by other common style factors such as value and momentum, or by other measures of sentiment such as those derived from short interest or analyst revisions.


Beyond Market Equilibrium: The Future of Active Investing

Research Paper - Asset owners use indexes as policy benchmarks and reference portfolios in their asset allocation. Index investors track cap-weighted indexes that seek to capture the market return. Active investors select securities and build portfolios that aim to outperform the market. All these types of investors may be able to benefit from incorporating factors into their process.


Which factors mattered in China?

Blog Post - Chinese equity prices have hardly been music to investors’ ears in 2018. The MSCI China A Onshore IMI Index has declined more than 25% in local currency terms through Oct. 31, with a relatively narrow differentiation of returns. Were there factors in this market that outperformed?

MSCI Factor Investing Webinar Series

We discuss the evolution of factor investing, look at markets in 2016 through the lens of factor investing and conclude with a deep dive into the developing area of dynamic factor allocation.

FLIGHT TO QUALITY

The quality factor has demonstrated long-term outperformance against the market, but it has not received the same attention as the value, size or momentum factors.

Finding Value: Understanding Factor Investing

The perennial appeal of value investing is based on the excellent long-term performance of global value stocks. Investors today use various approaches to identify the exposure of stocks with “value” characteristics that help explain risk and return.