msci.com

Factor Analytics

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Elements of performance

TM

Factors by MSCIV O L AT I L I T Y

YIELD

Vo

QUALITY

Qy

Yd

MOMENTUM

VA L U E

SIZE

Vl

Mt

GROWTHGr

Sz
LIQUIDITY

Li

Factors are the building blocks of many portfolios – the elements
capable of turning data points into actionable insights.

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Factor Analytics
by MSCIMSCI is a leader in providing tools
to help clients build and manage
better portfolios, implement
strategies and measureperformance. As a leader in theapplication of factors for morethan 40 years, MSCI, beginningwith Barra has invented acommon language to explain risk
and return through the lensof factors.

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With the advancement in data
and technology, MSCI has
simplified complex data into
actionable insights to be usedby a broader audience. MSCI
has developed Factor Models
in consultation with the world’s
largest investors and has
research backed by four decadesof factor data. Our Factor Models
have evolved in tandem with theindustry and have their roots inacademic literature.

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Evolution of MSCI’s

Factor Models
with industry andacademia
1992
1972
Haugen & Heins refining CAPM to create low
volatility factor investing, demonstrated thatstock portfolios with lower volatility tend to
produce higher returns on average

2018
Launched MSCI Multi-Asset Class
Factor Model (MSCI MAC Factor
Model), a multi-tiered model thathelps analyze key portfolio exposuresacross asset classes

1993
Jegadeesh & Titman
published first researchon momentum factor

Fama & French expanded on
the Rational Market Theory todemonstrate that company
size and valuation factors are
drivers of stock price2013
New Systematic Equity
Strategy factors across
50+ models

Mid 1990s
1989
1975
Barra launch
Creation of the multifactor Barra risk models

GEM model 1st gen
First generation MSCI
Global Equity Model(GEM) launched

1986
1976
Stephen Ross introduced the Arbitrage
Pricing Theory (APT) Rosenberg & Marathe
Academic Asset Pricing Literature andPractitioner risk factor modeling researchChen, Ross, Rollsuggested thatmacroeconomic factors
can systematically affectstock market returns

2018
MSCI FactorLab was developed
to provide the latest factor
innovations outside of MSCI
standard models

First true integrated multiasset class factor model

2008
1997
Carhart expanded on
Fama-French threefactor model to include
momentum factor,
creating the Carhart
four-factor model

Launched MSCI Global
Minimum Volatility
Indices, global benchmark
offering managed volatility
investment strategies

2018
MSCI Launches FaCS andFactor Box
An industry standard andfactor classification for
consistent implementationand measurement for
Factor Investing

2000-2010
Multiple next generation
models
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MSCI Factor Analytics is aleader that helps clientsBanks

Hedge Funds

As our banking clients need much fastermoving metrics to stay ahead of the key driversof risk and return, MSCI continuously innovatesto offer our banking clients the latest factor
models with new content and research.

Our factor models help hedge funds seeking tocreate alpha by employing different strategies.
Our ground-breaking factor research andindexes help fund managers seeking tomaintain optimal exposure to a diverse setof factors.

Need / Challenges

throughout theinvestment
process

Need / Challenges

Leading sell-side bank wanted toincorporate market standard factor
baskets for the bank’s hedge fundclients to take directional bets onhedge portfolios through basket
swaps. They specifically wanted along-short construct with neutrality
to all other factors and the ability
to rebalance frequently enough toaccount for market movement.

Our hedge fund client was looking
for a factor provider that stays at theforefront of research and innovationin factors. Specifically, they soughtto drive performance, access insight
into risk and return, and understandexposures better.
MSCI solution
We successfully demonstrated MSCI’s
continuous innovation in factors thatgive the client full access to our factor
research and development.

MSCI solution
Our Managed Services helped client
implement tools to allow them tocreate factor replicating portfolios
with auto-rebalance on a monthly
basis. MSCI, helped client implement
optimization inputs for a pre-specified
number of custom factor baskets(Momentum, Value, etc.).

Outcome»

OutcomeAsset Managers

Asset Owners

Banks

Hedge Funds»

This joint effort allowed the client
to create a new product for a key
growth client segment that allows
their clients to gain more precise
hedge exposure to MSCI factors.

»

Ability to serve additional clientssegments with this new capability.

The client creates their own
models, generates alpha signals,
and communicates to investors
their competitive advantage
using MSCI factor data andsolutions.

Asset Managers

Need / Challenges

OutcomeAsset Owners

Need / Challenges

We provide leading research, data and tools to
help asset managers build and manage theirportfolios. Our models help asset managers
understand factor exposures which enables
them to position their fund more effectively andbuild a differentiated portfolio.

To better educate financial advisors about
factor exposures, our client, one of the largest
mutual fund organizations in the U.S., requireda robust infrastructure to power an easy-tounderstand advisor tool. They were looking fora solution that seamlessly integrated into its
external Financial Advisory Services website.

»

MSCI factor applications provided
transparency and insight into the factor
exposures of their investment products

One of the leading U.S. institutional Asset
Owners wanted to further enhance theirdue diligence and manager selection»

Client was able to utilize our MSCI factor
applications to incorporate the necessary
technology they needed to seamlessly
differentiate their products to financial
advisors.

The complexity in fund selection makes it very
difficult for Asset Owners to make informed
decisions. We offer solutions to help Asset
Owners understand investment portfolios in avery simple way, assess fund performance andcompensate managers.

MSCI solution
MSCI developed a custom application for thislarge mutual fund organization comprisedof client defined factor exposures andoptimized for the client’s advisor-facing
factor investing tool.
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Provided the ability to compare portfolios
and find alternatives better suited for theirclients’ goals

MSCI solution
MSCI factor tools provided insights into
the drivers of risk and return. With MSCI
Factor Indexes, the client was able tomeasure investment exposures in asystematic and transparent manner
Outcome»More informed manager selection
and performance while controlling
for risk.

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MSCI Barra Equity Factor Models

MSCI

MSCI Barra Equity Models leverage MSCI’s experience in developing andEquityModelsmaintaining global equity multi-factor models and indexes, which are utilized
by institutional fund managers worldwide.

Single Country, Regional, and Global Models
MSCI Equity Models provide a foundation for investment decision support
tools via a broad range of insightful analytics for Single country, Regional
and Global Models. These models are built on decades of experience inconstructing equity models and market-leading benchmarks.

MSCI Equity Models provide institutional
investors with tools for investigating sourcesof factor alpha, understanding returns, andmeasuring risk due to factors. MSCI offers morethan 70 models across 75,000+ securities,
45 Industry factors and 87 countries.

Models for Multiple Investment Horizons
MSCI Equity Models are available in different factor structures designed
to align to individual investment horizons and goals. Long-term models
are designed with a focus on portfolio construction & reporting andTrading models are constructed for short-term trading, hedging, anddaily risk monitoring.

Barra® global model

Features of MSCI Equity Models»

Barra® Intergrated Model

Global Equity Model

Barra® regional models
Europe Equity
ModelsEurope Stochastic
Factor Model

Asia Pacific Equity
ModelsEmerging Markets
Equity Model

North America
Stochastic Factor Model

Barra® single country equity models
Americas
US Total Market Equity
Model Suite
US Sector Equity Models
US Small Cap Equity Model
US Trading Equity Models
Canada Equity Model

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Europe, Middle East
& Africa»»

Australia Equity Model

Malaysia Equity Model

China Equity Model

New Zealand Equity Model

United Kingdom Equity
Model

China International Equity
Model

Singapore Equity Model

United Kingdom Trading
Equity Model

Hong Kong Equity Model

Thailand Equity Model

Brazil Equity Model

Indonesia Equity Model

Mexico Equity Model

Korea Equity Model

Taiwan Equity Model

Strategies (SES) include

markets and back to themultiple new Quality factors

1970s for the U.S.

Factors based on MSCI data»

Latest modelingsuch as ESG or Economic

methodologies aimed at

Exposure

improving risk forecastingMulti-industry and country

segments»

Daily history back to at least
the mid-1990s for mostinto a firm’s business

South Africa Equity Model»

based on Systematic Equity

exposures for deeper insight

Asia PacificIndia Equity Model

Enhanced style factors

accuracy, portfolio
construction, asset beta
estimation and more precise
attribution of stock returns

Point-in-Time fundamental
data address look-aheadbias in back-tests andenable more timely updates
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MSCI Equity Models
Captures systematic characteristics across asset classes
Many investors recognize a spectrum between traditional
alpha and beta, with a variety of systematic strategies
in the middle. Systematic strategy factors like Value andMomentum have been common in equities for decades. Morerecently, many investors have recognized the importance ofsystematic strategies in a wide range of asset classes. Many
strategies that originated in equities have counterparts inother asset classes.
»

Introduce systematic strategy factors
beyond equities»

Multi-asset class systematic strategy
Factors distinguish factor betas from alphaand traditional beta

The MSCI Multi-Asset Class (MAC) Factor Model

Multi-Asset Class Factor Models

The MSCI Multi-Asset Class Factor Model provides further
insight and control into multi or single asset class investing.
The integration between tiers helps bridge the gap from

Factors have brought disruptive change to the asset management industry.

construction to communication between the board, CIO, andFirst established to define common characteristics among stock, factors

portfolio managers using a common language.

now take many forms and span many asset classes. The MSCI MAC
Board reporting

Factor Model:

Tier

01

Supports factor-based asset allocation
Traditional asset allocation has viewed the markets in terms of asset-classbuckets: equity, fixed income, and alternatives. Factor-based asset allocation

Asset allocation andtotal plan budgeting

moves the strategic allocation decisions away from asset-class buckets

Tier

Systematic
Strategies

Portfolio management

Tier

»

Provides high-to-low granularity in looking at Systematic
framework»
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Construct portfolios andanalyze specific exposures

Risk reporting
Equities

Commodities

Provides further insight and control into multi or single
asset class investing

Tactical asset
allocation

Identify tactical
positioning~3,000factors

Local factors

Strategy Factors through an integrated and consistent

Evaluate systematic
strategies

350+
factors04

factor exposures across asset classes in a consistent manner.

Strategic asset
allocation

Allocate with systematic
strategies

70+
factors03

portfolios transition from traditional asset class allocation to a factor-based

Set strategic
allocation

25
factorsTier

to factors that both cut across and split apart traditional asset class. As
allocation process, MSCI’s MAC Factor Model can help investors focus on

02

9factors

Strategic asset allocation

Fixed
incomeDerivatives

Systematic strategies

Privateassets

Tactical asset allocation

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MSCI

FaCS and
Factor Box
TM

Turn confusion

into clarity

MSCI FaCSTM creates a common language and definitions aroundfactors 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 tocompare funds using common factor standard definitions.

This standard comes to life through an innovative way oflooking at factors-MSCI Factor Box. The Factor Box provides
a visualization designed to easily compare factor exposures
between funds and benchmarks. It includes factors which havehistorically demonstrated excess market returns over the longrun. The Factor Box helps clients evaluate and implement factors,
while easily comparing funds with a simple visualization.
Underweight

NeutralOverweight

VALUE

VALUE

SIZE

MOMENTUMQUALITY

Book-to-Price

Size

Momentum

Leverage

Earnings Yield

Mid Cap

Earnings Variability

Long-Term Reversal

LOW SIZE

MOMENTUM

Earnings Quality

MSCI ACWI index

Investment Quaity
Profitability

MSCI ACWI DMF index

QUALITYYIELDLOW VOLATILITYYIELDVOLATILITYGROWTHLIQUIDITYDividend Yield

Beta

GrowthLiquidity

Residual Volatility
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MSCI empowers our clients to
MSCIFactorLab
MSCI believes in staying ahead of the curve and researches factors
to help clients gain a competitive edge. MSCI continues this factor
innovation to identify underutilized and alternative data and algorithms
to provide unique information not contained in classic factors. MSCI
FactorLab provides the latest factor innovation outside of MSCI’s
standard models that can be integrated quickly. MSCI FactorLab provides
further transparency and access to our curated factor research. It
provides access to new, research-enhanced data sets for use cases
ranging from alpha research to building custom-risk factors.
Key benefits of FactorLab include:»

Faster access to new research and datasets»

Alternative factor research gives more insight into factor
performance that can be translated into alpha generation»

Facilitate creation of custom models and internal analytics»

The format of FactorLab is the same as other MSCI products
and therefore can be integrated at a low costFeatures of FactorLab:

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make better
investment
decisions»

Daily financial metrics on over 77,000 equities covering 87 countries»

Asset-level signals include raw and standardized exposures»

Same data used to build models and updated as markets evolve

Integration
Models tightly integrated
with Industry-leading
Global equity benchmarks

Optimization

Innovation

Open, flexible optimization library,specifically designed to help solve
portfolio management challenges

Continual innovation ofindustry best practices
including SES, MAC, China,
ESG data and ratings

Data validation
Thorough data quality
validation process

MSCI
Factor Models

Customization
Create custom models /benchmarks to alignwith client investment
strategy

Transparency

Platform
Centralized Analytics platform - MSCIBeon™ that allows clients to accessand interact with their data andanalytics alongside MSCI’s
and third-party content,
all in one place

Full transparency into
the data and data
methodologies used inmodel construction

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Factor framework
by Key MSCI Equity model

VOLATILITYQUALITYVALUE

MOMENTUMSENTIMENT

SIZE

YIELD

GROWTHLIQUIDITY

MACRO

Beta

Leverage

Momentum

Book-to-Price

Analyst Sentiment

Dividend Yield

Size

GrowthLiquidity

Foreign sensitivity

Historical Beta

Debt to Assets

Rel StrengthBook-to-Price

Revision Ratio

Reported D/P

Log of Market Cap

Sales Growth

1m Turnover

Foreign Sales to Total Sales

Book Leverage

Historical Alpha

Earnings Yield

Change in AnalystPredicted E/P

Forecast D/PEarnings Growth

3m Turnover

US market sensitivity

Forecast LTG

12m Turnover

Developed market
sensitivity

Residual Volatility
Hist Sigma

Mkt Leverage

1-Day Reversal

Reported E/P

1-Day Reversal

Forecasted E/P

Daily Std Dev

Profitability

Cumulative Range

Asset TurnoverImplied Volatility
1 month Call

Profitability

Implied Volatility
3 month Call

Return on Assets

Prospect

Return on Equity

Skewness

Implied Volatility
1 month Put
Implied Volatility
3 month Put

Profit Margin

Earnings Variability
Variation in Sales

Industry Momentum
Industry Momentum

Maximum Drawdown
Lottery

Variation in Earnings

Regional Momentum

Downside Risk

Variation in Cash Flow

Regional Momentum

Lower Partial Moment

Variation in Fwd EPS

Idiosyncratic Hybrid Tail
Covariance Risk
Hybrid Tail
Covariance Risk

Earnings Quality
Cash Earning/Earnings
Accruals - B/S Statement

Mean Lower Partial Moment
CAPM Beta

Accruals - C/F Statement

Idiosyncratic Lower Partial
MomentVariability in Earnings

Downside Beta

Standard Deviation of
Analyst Prediction to Price

Lower Partial Moment

Variability in Sales

Short-Term Reversal
Short-Term Reversal
Seasonality
Quarterly Seasonality
Annual Seasonality

Cash E/P
EBIDTA E/PLong-Term Reversal

Change in AnalystPredicted EPS
Net Profit Forecast
Revisions
Analyst Rating Change

LT Rel Strength

News Sentiment

LT Hist Alpha

Positive Composite
Sentiment

Other

Positive Event Sentiment

Sales-to-PriceCash-Flow-to-Price

Composite Sentiment
Dispersion

Structural Valuation

At-the-money Skew

Mid Cap
Cube of Size

12m ATVR
Modified Amihud Measure

Currency Sensitivity

Pastor-Stambaugh MeasureLong-Term Reversal
Interest Rate
Oil Sensitivity
Gold Sensitivity

Net profit forecasts
revisions
Analyst rating change
Market Sentiment
At-the-Money Skew
Short Interest

Variability in Cash-Flows

Investment Quality
Asset Growth
Capex Growth
Issuance Growth
Capital ExpenditureManagement forecast bias
Composite Issuance

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Learn more about Factor Investing at
www.msci.com/factor-investing

About MSCI Inc.
MSCI is a leading provider of critical decision support tools
and services for the global investment community. With
over 45 years of expertise in research, data and technology,
we power better investment decisions by enabling clientsto understand and analyze key drivers of risk and returnand confidently build more effective portfolios. We create
industry-leading research-enhanced solutions that clientsuse to gain insight into and improve transparency across theinvestment process.
To learn more, please visit www.msci.com.

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