EUROPE TOTAL MARKET EQUITYMODEL FOR LONG TERM INVESTORS(EULTS) FOR MSCI INDEXES
March 2019
This consultation may or may not lead to the implementation of any or all of the
proposed changes in MSCI’s indexes. Consultation feedback will remain confidential.
MSCI may publicly disclose feedback if specifically requested by specific market
participants. In that case, the relevant feedback would be published together with thefinal results of the consultation.

© 2019 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

SUMMARY The MSCI Barra Factor Indexes (Long-Short, Market Neutral and Long-Only) are currently
constructed using the Barra Europe Equity Base Model – Short Term Variant (EUE3S BAS)
 A new version of that model, the Barra Europe Total Market Equity Model for Long Term Investors- Responsive Variant (EULTS), was launched in December 2017.
 Enhancements include:• Introduction of new Style factors based on Systematic Equity Strategies• Enhanced industry and country exposures that capture the varying sensitivities of firms to
the country and industry factors resulting in more precise attribution of stock returns• Point-in-Time fundamental data to a help address potential look-ahead bias
• Broad coverage of stocks, cross-listed securities, and depository receipts.

 MSCI proposes to transition the index construction of the MSCI Barra Factor Indexes to use thelatest EULTS Model, using corresponding model factor definitions, so as to better capture thetargeted risk premia
 MSCI welcomes feedback from the investment community on the proposal on or before April 5,
2019. MSCI will announce the results of the consultation on or before April 19, 2019.

2

MSCI INDEXES IN SCOPE FOR PROPOSED USE OF BARRA EULTS
MODEL IN INDEX COSNTRUCTION

3OVERVIEW OF THE EULTS MODEL

4

STYLE FACTOR
Asset Coverage
Style Factors
Industry Allocation
SchemeBook-to-Price(Value in EUE3)

EUE3 Model
9400
9

EULT Model
16400+
18

Single-industry allocation

Multiple-industry allocation

Indicates how “inexpensively” a company is currently traded byusing its book value and past revenues as yardsticks.

Explains the return component attributable to a stock's
book-to-price ratio and can be an indicator of value• Book-to-Price Ratio • Sales-to-Price Ratio• Book-to-Price

Relates the current market valuation of a company to its ability to Describes stock return differences due to various ratios of thegenerate positive earnings and cash flows.
company's earnings relative to its price.
Earnings Yield

Momentum• Cash Earnings-to-Price Ratio • Trailing Annual Earnings-to-Price
Ratio • Predicted Earnings- to-Price-Ratio • Return on Equity• Cash Earnings-to-Price • Earnings-to-Price • Analyst-Predicted
Earnings-to-Price • Enterprise Multiple (EBIT to EV)

Describes risk associated with the trending behavior of stock
returns over a horizon of about a year.

Explains the return differences of stocks based on their relative
performance over the trailing
6-12 months.

• 12-Month Relative Strength, lagged by 1 month • 6-Month
Relative Strength, lagged by 1 month • Historical Weekly Alpha

Beta
Captures return and risk differences between high-beta and low(Volatility in EUE3) beta stocks. Complements the regional market factor, which
represents the volatility of a broadly diversified market portfoliowith β = 1.
Residual Volatility • Historical Weekly Beta • Cumulative Range • Daily Asset(Volatility in EUE3) Volatility• Relative Strength 12-Month • Historical Alpha
Captures the market risk that cannot be explained by the Market
Equity factor• Historical Beta
Explains returns associated with high-volatility stocks that are notcaptured by the Beta factor.
• Historical Sigma • Daily Standard Deviation • Cumulative Range

Captures the relationship between a firm’s stock returns and its
level of indebtedness.

Captures the return differences between high-leverage andlow-leverage stocks.

• Market Leverage • Book Leverage• Debt-to-Assets Ratio • Book Leverage • Market Leverage

Leverage

5

MSCI LONG SHORT BARRA FACTORINDEXES

6EXISTING V/S PROPOSED METHODOLOGYParameter
Parent Index (Stock Selection Universe)
Benchmark/ Reference Index
Barra Model
Index Type
Optimization Objective
Gross Leverage
Target factor exposure
Non-target style factor exposure
Industry factor exposure
Country factor exposure
Max number of stocks
Maximum constituent weight
One-way monthly turnover
1-month ADV Trade Limit
Shorting Cost threshold

MSCI Long-Short Barra Factor Indexes
MSCI Long-Short Barra Factor Indexes(Existing)(Proposed)
MSCI Europe IMIMSCI Europe IMIMSCI Europe
MSCI Europe
EUE3SBAS
EULTS
Long-Short 130/30 (150/50 for Low Volatility)
Long-Short 130/30 (150/50 for Low Volatility)
Designed to achieve a high level of exposure to the Target Factor while controlling exposure to otherfactors and minimizing the ex-ante tracking error relative to the Benchmark Index (MSCI Europe).
1.6 (2.0 for Low Volatility)
1.6 (2.0 for Low Volatility)
1 or -1 standard deviation*
1 or -1 standard deviation*+/- 0.1+/- 0.1+/- 0.50%+/- 0.50%+/- 0.50%+/- 0.50%
400
400+/- 2%+/- 2%
8% (one-way)
8% (one-way)
10%
10%
250bps (buffer-50bps)
250bps (buffer-50bps)

Proposal – Transition the EUE3-based Long-Short factor indexes to the EULT model using corresponding model factor definitions* Target Factor Exposures
MSCI Long-Short Barra Value Index(Existing)+1 standard deviation of EUE3SBAS Value(Proposed)+1 standard deviation of EULTS Book To Price

MSCI Long-Short Barra Earnings Yield Index +1 standard deviation of EUE3SBAS Earnings Yield +1 standard deviation of EULTS Earnings Yield

MSCI Long-Short Barra Momentum Index+1 standard deviation of EUE3SBAS Momentum

MSCI Long-Short Barra Low Leverage Index -1 standard deviation of EUE3SBAS Leverage
MSCI Long-Short Barra Low Volatility Index -1 standard deviation of EUE3SBAS Volatility+1 standard deviation of EULTS Momentum-1 standard deviation of EULTS Leverage-1 standard deviation of EULTS Beta and EULTS
Residual Volatility capped between [-1,0]

 At each monthly index rebalancing, the Index will have short positions only in securities whose Shorting Cost is below the
Shorting Cost Cutoff
 At each monthly rebalancing, the weight of each Index constituent will not change more than a predefined Trade Limit
linked to the stock’s Average Daily Traded Value

7

ACTIVE EULTS FACTOR EXPOSURES

8

ACTIVE EULTS FACTOR EXPOSURES (CONT...)

9

CHARACTERISTICS OF SIMULATED INDEXES
USING EXISTING AND PROPOSEDMETHODOLOGIES

10

KEY METRICS
Key Metrics
MSCI Europe
Index
Total Return* (%)
Total Risk (%)
Return/Risk
Sharpe Ratio
Active Return (%)
Tracking Error (%)
Information Ratio
Historical Beta
No of Stocks***
Turnover** (%)
Price To Book***Price to Earnings***
Dividend Yield*** (%)

6.1
16.7
0.36
0.33
0.0
0.0
NaN
1.00
448
2.5
1.7
16.0
3.5

Europe Barra
Europe Barra Europe Barra Europe Barra Europe Barra Europe Barra Europe Barra Europe Barra Europe Barra
Europe Barra
Value
Earnings Yield Earnings Yield Low Leverage Low Leverage Low Volatility Low Volatility Momentum Momentum
Value EULTS
EUE3SBAS
EUE3SBAS
EULTS
EUE3SBAS
EULTS
EUE3SBAS
EULTS
EUE3SBAS
EULTS
5.5
6.7
6.8
6.8
5.7
5.8
5.6
5.3
11.1
10.7
17.4
16.9
17.0
16.9
16.8
16.7
13.4
13.6
16.6
16.5
0.32
0.40
0.40
0.40
0.34
0.35
0.42
0.39
0.67
0.65
0.29
0.37
0.37
0.37
0.31
0.31
0.38
0.35
0.64
0.62
-0.5
0.7
0.7
0.7
-0.3
-0.3
-0.5
-0.7
5.1
4.7
2.7
1.9
2.5
2.0
1.4
1.2
4.8
4.7
4.7
4.4
-0.20
0.35
0.29
0.37
-0.23
-0.25
-0.10
-0.15
1.08
1.06
1.03
1.01
1.01
1.01
1.00
1.00
0.78
0.80
0.95
0.95
400
400
400
400
400
400
400
400
400
400
97.0
96.2
96.7
96.4
93.7
80.2
120.9
120.0
96.7
100.1
0.9
1.0
1.7
1.6
1.5
1.5
1.5
1.5
1.9
1.9
15.9
15.1
8.5
8.6
15.8
16.5
15.2
14.8
12.7
13.8
3.4
3.4
3.8
3.8
3.5
3.4
3.7
3.8
3.4
3.4

Period: 29-May-2009 to 31-Dec-2018* Gross returns annualized in USD** Annualized one-way index turnover over index reviews*** Monthly averages
The definitions of all statistical parameters are available in the Appendix

Performance (%)
MSCI Europe
Index
YTD
1 Yr
3 Yr
5 Yr
10 Yr

-14.3
-14.3
2.7
0.0
NaN

Europe Barra
Europe Barra Europe Barra Europe Barra Europe Barra Europe Barra Europe Barra Europe Barra Europe Barra
Europe Barra
Value
Earnings Yield Earnings Yield Low Leverage Low Leverage Low Volatility Low Volatility Momentum Momentum
Value EULTS
EUE3SBAS
EUE3SBAS
EULTS
EUE3SBAS
EULTS
EUE3SBAS
EULTS
EUE3SBAS
EULTS
-15.7
-13.3
-15.3
-14.3
-14.1
-15.6
-9.9
-9.0
-14.9
-14.0
-15.6
-13.3
-15.3
-14.2
-14.0
-15.5
-9.9
-9.0
-14.8
-13.9
3.1
4.2
2.7
2.2
3.2
2.4
2.3
3.3
3.4
3.5
-0.2
1.1
0.4
0.0
-0.1
-0.2
1.0
1.2
3.9
3.5
NaN
NaN
NaN
NaN
NaN
NaN
NaN
NaN
NaN
NaN

Gross returns in USD for the period ending 31-Dec-2018
Returns are annualized for periods longer than one year

11

ACTIVE FACTOR EXPOSURES: VALUE EXISTING V/S PROPOSED
EUE3SBAS Risk Index Factors - VALUE Existing Index
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20

EARNYIELDVALUEDIVYIELDGROWTH

LEVERAGE

Min

Average

SIZE

LIQUIDITY

MOMENTUM

VOLATILITYMax

EULTS Risk Index Factors - VALUE Proposed Index
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20

Min

AverageMax

12

ACTIVE FACTOR EXPOSURES:EARNINGS YIELD - EXISTING V/S PROPOSED
EUE3SBAS Risk Index Factors - Earnings Yield Existing Index
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20
EARNYIELDVALUEDIVYIELDGROWTH

LEVERAGE

Min

Average

SIZE

LIQUIDITY

MOMENTUM

VOLATILITYMax

EULTS Risk Index Factors - Earnings Yield Proposed Index
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20

Min

AverageMax

13

ACTIVE FACTOR EXPOSURES:
LOW LEVERAGE - EXISTING V/S PROPOSED
EUE3SBAS Risk Index Factors - Low Leverage Existing Index
0.20
0.10
0.00
-0.10
-0.20
-0.30
-0.40
-0.50
-0.60
-0.70
-0.80
-0.90
-1.00
-1.10
EARNYIELDVALUEDIVYIELDGROWTH

LEVERAGE
Min

Average

SIZE

LIQUIDITY

MOMENTUM

VOLATILITYMax

EULTS Risk Index Factors - Low Leverage Proposed Index
0.20
0.10
0.00
-0.10
-0.20
-0.30
-0.40
-0.50
-0.60
-0.70
-0.80
-0.90
-1.00
-1.10

Min

AverageMax

14

ACTIVE FACTOR EXPOSURES:
LOW VOLATILITY - EXISTING V/S PROPOSED
EUE3SBAS Risk Index Factors - Low Volatility Existing Index
0.20
0.10
0.00
-0.10
-0.20
-0.30
-0.40
-0.50
-0.60
-0.70
-0.80
-0.90
-1.00
-1.10
EARNYIELDVALUEDIVYIELDGROWTH

LEVERAGE
Min

Average

SIZE

LIQUIDITY

MOMENTUM

VOLATILITYMax

EULTS Risk Index Factors - Low Volatility Proposed Index
0.20
0.10
0.00
-0.10
-0.20
-0.30
-0.40
-0.50
-0.60
-0.70
-0.80
-0.90
-1.00
-1.10

Min

AverageMax

15

ACTIVE FACTOR EXPOSURES:
MOMENTUM - EXISTING V/S PROPOSED
EUE3SBAS Risk Index Factors - Momentum Existing Index
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20
EARNYIELDVALUEDIVYIELDGROWTH

LEVERAGE
Min

Average

SIZE

LIQUIDITY

MOMENTUM

VOLATILITYMax

EULTS Risk Index Factors - Momentum Proposed Index
1.20
1.00
0.80

0.60
0.40
0.20
0.00
-0.20
-0.40

Min

Average

Max

16

MSCI MARKET-NEUTRAL BARRA FACTORINDEXES

17

EXISTING V/S PROPOSED METHODOLOGYParameter
Parent Index (Stock Selection Universe)
Benchmark/ Reference Index
Barra Pure Factor portfolio
Barra Model
Index Type
Optimization Objective
Gross Leverage
Target factor exposure
Non-target style factor exposure
Industry factor exposure
Country factor exposure
Max number of stocks
Maximum constituent weight
One-way monthly turnover
1-month ADV Trade Limit
Shorting Cost threshold

MSCI Market Neutral Barra Factor Indexes
MSCI Market Neutral Barra Factor Indexes(Existing)(Proposed)
MSCI Europe
MSCI Europe
MSCI Europe
MSCI Europe• Volatility from the EUE3SBAS Model• Beta from the EULTS Model• Momentum from the EUE3SBAS Model• Momentum from the EULTS Model
EUE3SBAS
EULTS
Market Neutral Barra Factor
Market Neutral Barra Factor
Designed to achieve a high level of exposure to the Target Factor while controlling exposure toother factors and minimizing the ex-ante tracking error relative to the corresponding Barra Pure
Factor portfolio.
2 (100% Long and 100% Short)
2 (100% Long and 100% Short)
1 or -1 standard deviation*
1 or -1 standard deviation*+/- 0.1+/- 0.1+/- 3%+/- 3%+/- 3%+/- 3%
300
300+/- 3%+/- 3%
10% (one-way)
10% (one-way)
10%
10%
250bps (buffer-50bps)
250bps (buffer-50bps)

Proposal – Transition the EUE3-based Market Neutral factor indexes to the EULT model using corresponding model factor definitions* Target Factor Exposures(Existing)(Proposed)

MSCI Market Neutral Barra Momentum Index +1 standard deviation of EUE3SBAS Momentum +1 standard deviation of EULTS Momentum
MSCI Market Neutral Barra Volatility Index+1 standard deviation of EUE3SBAS Volatility+1 standard deviation of EULTS Beta and EULTS
Residual Volatility capped between [0, +1]

 At each monthly index rebalancing, the Index will have short positions only in securities whose Shorting Cost is below the
Shorting Cost Cutoff
 At each monthly rebalancing, the weight of each Index constituent will not change more than a predefined Trade Limit
linked to the stock’s Average Daily Traded Value

18

STYLE FACTOR EXPOSURES OF EXISTING MARKET NEUTRAL INDEX
Absolute EUE3SBAS Risk Factor Exposures:
Existing Europe Market Neutral Barra Volatility
1.20
1.00
0.80

0.60
0.40
0.20
0.00
-0.20

Absolute EULTS Risk Factor Exposures:
Existing Europe Market Neutral Barra Volatility
1.20
1.00
0.80
0.60
0.40
0.20

0.00
-0.20
-0.40

(As of Dec 2012)19

INDUSTRY/COUNTRY FACTOR EXPOSURE OF EXISTING MARKET
NEUTRAL INDEX
Absolute EULTS Industry Factor Exposures:
Existing Europe Market Neutral Barra Volatility

Absolute EUE3SBAS Industry Factor Exposures:
Existing Europe Market Neutral Barra Volatility
4.00%

6.00%

3.00%

5.00%
4.00%

2.00%

3.00%

1.00%

2.00%

0.00%

1.00%

0.00%

-1.00%-1.00%-2.00%-2.00%-4.00%AIRLINESAUTOCOMPBANKS
COMMSVCSCONSTRCONSDURDIVFINAN
ENERGYFOODPRDFOODRETLHEALTHCONSVCSHSHLDPRD
INSURANSOFTWARE
MACHINMEDIAMETALSOILGASCAPGOODSOTHERMAT
PHARMACREALESTRETAILSEMICOND
HARDWARE
TELECOM
TRANSPRTUTILITY-3.00%-4.00%
ENERGYOILGASOTHMATMTLSMINOTHCAPCONSENG
MACHINECOMMSVCSOTHTRANSAIRLINESAUTOCOMPCONSDURCONSVCSMEDIARETAIL
FOODRETLFOODBEVTHSHLDPRDHEALTHPHARMACBANKSDIVFINAN
INSURANREALESTSOFTWARETECHARDSEMICONDTELECOMUTILITY-3.00%

Absolute EUE3SBAS Country Factor Exposures:
Existing Europe Market Neutral Barra Volatility

Absolute EULTS Country Factor Exposures:
Existing Europe Market Neutral Barra Volatility

4.00%

6.00%

3.00%

5.00%
4.00%

2.00%

3.00%

1.00%

2.00%
0.00%
1.00%
-1.00%

0.00%-2.00%-1.00%-3.00%-2.00%-3.00%-4.00%BEL CHE DNK ESP FRA DEU NLD ITA NOR AUT SWE GBR FIN GRC PRT(As of Dec 2012)IRL

BEL CHE DNK ESP FRA DEU NLD ITA NOR AUT SWE GBR FIN GRC PRT

IRL

20

CHARACTERISTICS OF SIMULATED INDEXES
USING EXISTING AND PROPOSEDMETHODOLOGIES21

SIMULATED MARKET NEUTRAL MOMENTUM INDEXES :EXISTING V/S PROPOSED METHODOLOGY<Existing>
Key Metrics(Long)MSCI Europe
Index

Total Return* (%)
Total Risk (%)
Return/Risk
Active Return (%)
Tracking Error (%)
Information Ratio
Historical Beta
No of Stocks***
Turnover** (%)

4.3
13.0
0.33
0.0
0.0
NaN
1.00
441
2.4

<Proposed>(Short)(Long)<Existing>(Short)<Proposed>(Net Long-Short) (Net Long-Short)

Europe EUE3SBAS Europe EUE3SBAS
Europe EULTS MN Europe EULTS MN Europe EUE3SBAS Europe EULTS MN
MN Momentum MN Momentum
Momentum Long Momentum Short MN Momentum
Momentum
Long
Short
7.7
3.3
7.6
2.9
4.0
4.3
13.5
14.2
13.1
14.3
5.4
4.5
0.57
0.23
0.58
0.20
0.73
0.94
3.3
-1.0
3.3
-1.4
-0.3
-0.04
3.9
3.2
3.1
2.9
14.9
15.0
0.85
-0.32
1.08
-0.49
-0.02
-0.003
1.00
1.07
0.98
1.09
0.02
-0.01
137
148
150
148
286
298
60.5
67.4
61.2
67.7
122.9
125.3

Period: 30-Nov-2012 to 31-Dec-2018* Gross returns annualized in USD** Annualized one-way index turnover over index reviews*** Monthly averages
The definitions of all statistical parameters are available in the Appendix•••

The (Net Long-Short) Indexes are the Indexes that are expected to be transitioned
The (Long) and (Short) Indexes represent the Long part and Short part of the corresponding (Net Long-Short) Indexes (for illustration only)
The (Short) Index is represented by the absolute security weight of the short positions in the (Net Long-Short) Indexes

22

SIMULATED EUROPE MARKET NEUTRAL BARRA MOMENTUM INDEX –EXISTING METHODOLOGY
EUE3SBAS Industry Active Factor Exposure

EUE3SBAS Style Active Factor Exposure
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%

1.20
1.00
0.80
0.60
0.40
0.20
0.00

ENERGYOILGASOTHMATMTLSMINOTHCAPCONSENG
MACHINECOMMSVCSOTHTRANSAIRLINESAUTOCOMPCONSDURCONSVCSMEDIARETAIL
FOODRETLFOODBEVTHSHLDPRDHEALTHPHARMACBANKSDIVFINAN
INSURANREALESTSOFTWARETECHARDSEMICONDTELECOMUTILITY

-0.20

Min

Avg

Max

Min

Avg

Max

EUE3SBAS Country Active Factor Exposure
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%

-2.0%
-3.0%
-4.0%
BEL CHE DNK ESP FRA DEU NLD ITA NOR AUT SWE GBR FIN GRC PRT IRL
Min

Avg

Max

(Period: 30-Nov-2012 to 31-Dec-2018)23

SIMULATED EUROPE MARKET NEUTRAL BARRA MOMENTUM INDEX –PROPOSED METHODOLOGYEULTS Industry Active Factor Exposure

EULTS Style Active Factor Exposure
1.20

8.0%

1.00

6.0%

0.80

4.0%

0.60

2.0%

0.40

0.0%

0.20

-2.0%

-0.20

-4.0%
AIRLINESAUTOCOMPBANKS
COMMSVCSCONSTRCONSDURDIVFINAN
ENERGYFOODPRDFOODRETLHEALTHCONSVCSHSHLDPRD
INSURANSOFTWARE
MACHINMEDIAMETALSOILGASCAPGOODSOTHERMAT
PHARMACREALESTRETAILSEMICOND
HARDWARE
TELECOM
TRANSPRTUTILITY

0.00

Min

Avg

Max

Min

Avg

Max

EULTS Country Active Factor Exposure
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%

-2.0%
-3.0%
-4.0%
BEL CHE DNK ESP FRA DEU NLD ITA NOR AUT SWE GBR FIN GRC PRT IRL
Min

Avg

Max

(Period: 30-Nov-2012 to 31-Dec-2018)24

SIMULATED MARKET NEUTRAL VOLATILITY INDEXES :EXISTING V/S PROPOSED METHODOLOGY<Proposed><Existing>

Key Metrics(Long)(Short)(Long)(Short)<Existing><Proposed>(Net Long-Short)(Net Long-Short)

MSCI Europe Europe EUE3SBAS Europe EUE3SBAS Europe EULTS Europe EULTS Europe EUE3SBAS Europe EULTS MN
Index
MN Vol Long
MN Vol ShortMN Vol Long MN Vol ShortMN Volatility
Volatility
Total Return* (%)
Total Risk (%)
Return/Risk
Active Return (%)
Tracking Error (%)
Information Ratio
Historical Beta
No of Stocks***
Turnover** (%)

4.3
13.0
0.33
0.0
0.0
NaN
1.00
441
2.4

6.8
14.8
0.46
2.5
3.7
0.68
1.11
155
62.4

6.8
12.3
0.55
2.5
2.3
1.06
0.94
144
65.5

5.4
14.5
0.38
1.1
2.9
0.38
1.09
149
60.7

5.3
12.6
0.42
1.0
2.1
0.50
0.96
150
69.4

0.3
4.2
0.06
-4.1
11.3
-0.36
0.21
299
124.2

0.3
3.6
0.08
-4.0
11.6
-0.35
0.18
299
128.2

Period: 30-Nov-2012 to 31-Dec-2018* Gross returns annualized in USD** Annualized one-way index turnover over index reviews*** Monthly averages
The definitions of all statistical parameters are available in the Appendix•••

The (Net Long-Short) Indexes are the Indexes that are expected to be transitioned
The (Long) and (Short) Indexes represent the Long part and Short part of the corresponding (Net Long-Short) Indexes (for illustration only)
The (Short) Index is represented by the absolute security weight of the short positions in the (Net Long-Short) Indexes

25

SIMULATED EUROPE MARKET NEUTRAL BARRA VOLATILITY INDEX –EXISTING METHODOLOGY
EUE3SBAS Industry Active Factor Exposure

EUE3SBAS Style Active Factor Exposure
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%

1.20
1.00
0.80
0.60
0.40
0.20
0.00

ENERGYOILGASOTHMATMTLSMINOTHCAPCONSENG
MACHINECOMMSVCSOTHTRANSAIRLINESAUTOCOMPCONSDURCONSVCSMEDIARETAIL
FOODRETLFOODBEVTHSHLDPRDHEALTHPHARMACBANKSDIVFINAN
INSURANREALESTSOFTWARETECHARDSEMICONDTELECOMUTILITY

-0.20

Min

Avg

Max

Min

Avg

Max

EUE3SBAS Country Active Factor Exposure
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%

-2.0%
-3.0%
-4.0%
BEL CHE DNK ESP FRA DEU NLD ITA NOR AUT SWE GBR FIN GRC PRT IRL
Min

Avg

Max

(Period: 30-Nov-2012 to 31-Dec-2018)26

SIMULATED EUROPE MARKET NEUTRAL BARRA VOLATILITY INDEX –PROPOSED METHODOLOGYEULTS Industry Active Factor Exposure

EULTS Style Active Factor Exposure
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%-2.00%-3.00%-4.00%

1.20
1.00
0.80
0.60
0.40
0.20
0.00

AIRLINESAUTOCOMPBANKS
COMMSVCSCONSTRCONSDURDIVFINAN
ENERGYFOODPRDFOODRETLHEALTHCONSVCSHSHLDPRD
INSURANSOFTWARE
MACHINMEDIAMETALSOILGASCAPGOODSOTHERMAT
PHARMACREALESTRETAILSEMICOND
HARDWARE
TELECOM
TRANSPRTUTILITY

-0.20

Min

Avg

Max

Min

Avg

Max

EULTS Country Active Factor Exposure
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%-2.00%-3.00%-4.00%BEL CHE DNK ESP FRA DEU NLD ITA NOR AUT SWE GBR FIN GRC PRT IRL
Min

Avg

Max

(Period: 30-Nov-2012 to 31-Dec-2018)27

MSCI LONG-ONLY BARRA FACTORINDEXES

28

EXISTING V/S PROPOSED METHODOLOGYParameter
Parent Index (Stock Selection Universe)
Benchmark/ Reference Index
Barra Model
Index Type
Optimization Objective
Gross Leverage
Target factor exposure
Non-target style factor exposure
Industry factor exposure
Country factor exposure
Max number of stocks
Maximum constituent weight
One-way monthly turnover
1-month ADV Trade Limit

MSCI Long-only Barra Factor Indexes
MSCI Long-only Barra Factor Indexes(Existing)(Proposed)
MSCI Europe
MSCI Europe
MSCI Europe
MSCI Europe
EUE3SBAS
EULTS
Long-Only
Long-Only
Designed to maximize exposure to the Target Factor while controlling exposure to other factors andminimizing the ex-ante tracking error relative to the Benchmark Index (MSCI Europe).
Long-Only
Long-Only
Unconstrained*
Unconstrained*+/- 0.25+/- 0.25+/- 5%+/- 5%+/- 5%+/- 5%
200
200+/- 2%+/- 2%
5% (one-way)
5% (one-way)
10%
10%

Proposal – Transition the EUE3-based Long-only factor indexes to the EULT model using corresponding model factor definitions* Target Factor Exposures(Existing)(Proposed)

MSCI Europe Value Tilt Index

High exposure to the EUE3SBAS Value factor

High exposure to the EULTS Book To Price factor

MSCI Europe Momentum Tilt Index

High exposure to the EUE3SBAS Momentum factor

High exposure to the EULTS Momentum factor

 At each monthly rebalancing, the weight of each Index constituent will not change more than a predefined Trade Limit
linked to the stock’s Average Daily Traded Value

2
9

MSCI EUROPE BARRA MOMENTUM TILT INDEXEUE3SBAS Style Active Factor Exposure
0.80
0.60
0.40
0.20
0.00
-0.20
-0.40

Min

Avg

Max

EULTS Style Active Factor Exposure
1.00
0.80
0.60
0.40
0.20
0.00
-0.20
-0.40
-0.60
-0.80

Min

(Period: 30-Nov-2012 to 31-Dec-2018)

Avg

Max

30

MSCI EUROPE BARRA VALUE TILT INDEXEUE3SBAS Style Active Factor Exposure
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
-0.20
-0.40

Min

Avg

Max

EULTS Style Active Factor Exposure
2.00
1.50
1.00
0.50

0.00
-0.50
-1.00

Min

(Period: 30-Nov-2012 to 31-Dec-2018)

Avg

Max

31

DISCUSSION POINTS• Do you agree with the proposal to use the latest Barra Europe Equity Model in the index construction of: MSCI Long-Short Barra Factor Indexes
 MSCI Market Neutral Barra Factor Indexes
 MSCI Long-only Barra Factor Indexes• Do you agree with the mapping of target factors in the proposal for the: MSCI Long-Short Barra Factor Indexes

 MSCI Market Neutral Barra Factor Indexes
 MSCI Long-only Barra Factor Indexes• Do you agree with the mapping of constraints for the: MSCI Long-Short Barra Factor Indexes
 MSCI Market Neutral Barra Factor Indexes
 MSCI Long-only Barra Factor Indexes Do you agree that the turnover allowed by the optimisation at transition should be as proposed?

32

APPENDIX 1:
LEVELS BASED ON MODEL FACTOR
RETURNS33

BTOP EULT

10/1/2018

7/1/2018

4/1/2018

1/1/2018

10/1/2017

7/1/2017

4/1/2017

1/1/2017

10/1/2016

7/1/2016

4/1/2016

1/1/2016

10/1/2015

7/1/2015

4/1/2015

1/1/2015

10/1/2014

7/1/2014

4/1/2014

1/1/2014

10/1/2013

7/1/2013

4/1/2013

1/1/2013

10/1/2012

7/1/2012

4/1/2012

1/1/2012

10/1/2011

7/1/2011

4/1/2011

1/1/2011

10/1/2010

7/1/2010

4/1/2010

1/1/2010

10/1/2009

7/1/2009

4/1/2009

LEVELS: VALUE
160

150

140

130

120

110

100

90

80

70

60

VALUE EUE3BAS

Correlation of Factor Returns

BTOP EULT VALUE EUE3BAS
BTOP EULT
1
VALUE
0.72441961
1

34

EARNYILD EULTEARNYILD EULT EARNYIELD EUE3BAS
EARNYILD EULT
1
EARNYIELD EUE3BAS 0.638391646
1
10/1/2018

7/1/2018

4/1/2018

1/1/2018

10/1/2017

7/1/2017

4/1/2017

1/1/2017

10/1/2016

7/1/2016

4/1/2016

1/1/2016

10/1/2015

7/1/2015

4/1/2015

1/1/2015

10/1/2014

7/1/2014

4/1/2014

1/1/2014

10/1/2013

7/1/2013

4/1/2013

1/1/2013

10/1/2012

7/1/2012

4/1/2012

1/1/2012

10/1/2011

7/1/2011

4/1/2011

1/1/2011

10/1/2010

7/1/2010

4/1/2010

1/1/2010

10/1/2009

7/1/2009

4/1/2009

LEVELS: EARNINGS YIELD
160.0000

140.0000

120.0000

100.0000

80.0000

60.0000

EARNYIELD EUE3BAS

Correlation of Factor Returns

35

MOMENTUM EULTMOMENTUM EUE3BAS
MOMENTUM EULT

10/1/2018

7/1/2018

4/1/2018

1/1/2018

10/1/2017

7/1/2017

4/1/2017

1/1/2017

10/1/2016

7/1/2016

4/1/2016

1/1/2016

10/1/2015

7/1/2015

4/1/2015

1/1/2015

10/1/2014

7/1/2014

4/1/2014

1/1/2014

10/1/2013

7/1/2013

4/1/2013

1/1/2013

10/1/2012

7/1/2012

4/1/2012

1/1/2012

10/1/2011

7/1/2011

4/1/2011

1/1/2011

10/1/2010

7/1/2010

4/1/2010

1/1/2010

10/1/2009

7/1/2009

4/1/2009

LEVELS: MOMENTUM
160

140

120

100

80

60

MOMENTUM EUE3BAS

Correlation of Factor Returns

MOMENTUM EULT MOMENTUM EUE3BAS
1
0.932489859
1

36LEVERAGE EULTLEVERAGE EUE3BAS
LEVERAGE EULT

10/1/2018

7/1/2018

4/1/2018

1/1/2018

10/1/2017

7/1/2017

4/1/2017

1/1/2017

10/1/2016

7/1/2016

4/1/2016

1/1/2016

10/1/2015

7/1/2015

4/1/2015

1/1/2015

10/1/2014

7/1/2014

4/1/2014

1/1/2014

10/1/2013

7/1/2013

4/1/2013

1/1/2013

10/1/2012

7/1/2012

4/1/2012

1/1/2012

10/1/2011

7/1/2011

4/1/2011

1/1/2011

10/1/2010

7/1/2010

4/1/2010

1/1/2010

10/1/2009

7/1/2009

4/1/2009

LEVELS: LEVERAGE
160

150

140

130

120

110

100

90

80

70

60

LEVERAGE EUE3BAS

Correlation of Factor Returns

LEVERAGE EULT LEVERAGE EUE3BAS
1
0.650557949
1

37

VOLATILITY EUE3BAS
BETA EULTRESVOL EULTVOLATILITY EUE3BAS
BETA EULT

10/1/2018

7/1/2018

4/1/2018

1/1/2018

10/1/2017

7/1/2017

4/1/2017

1/1/2017

10/1/2016

7/1/2016

4/1/2016

1/1/2016

10/1/2015

7/1/2015

4/1/2015

1/1/2015

10/1/2014

7/1/2014

4/1/2014

1/1/2014

10/1/2013

7/1/2013

4/1/2013

1/1/2013

10/1/2012

7/1/2012

4/1/2012

1/1/2012

10/1/2011

7/1/2011

4/1/2011

1/1/2011

10/1/2010

7/1/2010

4/1/2010

1/1/2010

10/1/2009

7/1/2009

4/1/2009

LEVELS: VOLATILITY
160

150

140

130

120

110

100

90

80

70

60

RESVOL EULT

Correlation of Factor Returns

VOLATILITY EUE3BAS BETA EULT RESVOL EULT
1
0.912648913
1
0.55181514
0.363109229
1

38

APPENDIX 2:
FACTOR EXPOSURE CORRELATION(AS OF MAY 2018)

39

VALUE FACTOR EXPOSURE
4

EUE3BAS Value Exposure ------->

3

2

1

0
-3

-2

-1

0

1

2

3

4

-1

-2

y = 0.8237x
R² = 0.4822-3

EULT Book to Price Exposure ------->

40

EARNINGS YIELD FACTOR EXPOSURE
54

EUE3BAS Earnings Yield Exposure ------->

32

y = 0.7707x
R² = 0.6092

1

0
-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

-1

-2

-3

-4

-5

EULT Earnings Yield Exposure ------->

41

MOMENTUM FACTOR EXPOSURE
4

EUE3BAS Momentum Exposure ------->

32

y = 0.9393x
R² = 0.7226

1

0
-4

-3

-2

-1

0

1

2

3

4

-1

-2

-3

-4

EULT Momentum Exposure ------->

42

LEVERAGE FACTOR EXPOSURE
4

EUE3BAS Leverage Exposure ------->

3

-4

2

y = 0.6536x
R² = 0.5235
1

0
-3

-2

-1

0

1

2

3

4

5

-1

-2

-3

EULT Leverage Exposure ------->

43

VOLATILITY FACTOR EXPOSURE

EUE3BAS Volatility Exposure ------->

4

3

2

1

y = 1.0949x
R² = 0.5188
0
-4

-3

-2

-1

0

1

2

3

-1

-2

-3

-4

EULT Volatility Exposure ------->•EULT Volatility represented as 0.5* EULT BETA + 0.5* EULT Residual Volatility
44

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47