Factor Investing Factor Investing MSCI has developed factor indexes, FaCS and factor models backed by four decades of factor research and innovation. The FaCS report Interactive experience bringing clarity to your investments Interact with the Report About factors by MSCI In the realm of investing, a factor is any characteristic that can explain the risk and return performance of an asset. For over 40 years MSCI, starting with Barra, has researched factors to determine their effects on long term equity performance. MSCI has developed Factor Indexes and Factor Models in consultation with the world’s largest investors and has research backed by four decades of Factor data compiled by a 200+ global research team. MSCI has been a leader in factors for over 40 years. Explore the history of MSCI factors below. MSCI FACTOR INNOVATIONS ACADEMIC FACTOR MILESTONES 1960 CAPM The Capital Asset Pricing model attempted to measure how the risk of an investment may affect its expected return. The measurement of the sensitivity of a security to the broader market was called Beta Developed by: 1961 Treynor 1964 Sharpe 1965 Litner 1966 Mossin 1969 MSCI begins licensing indexes MSCI was a pioneer in developing the market for global equity indexes. We began licensing our first equity index products in 1969 0 seconds of 0 seconds Elements of performance: factors by MSCI Factors are the building blocks of many portfolios - the elements capable of turning data points into actionable insights. Download Transcript MSCI Institutional Investor Conference 2021 Institutional investors are sharpening their focus on the financial impacts of climate change and aligning portfolios with the goal of net-zero emissions by midcentury. That challenge, together with disruptive innovation, factor investing and potential risk in bonds, took center stage at MSCI’s latest Institutional Investor conference. Learn More Factor groups Factors have historically been identified as critical drivers of portfolio risk and return and can now be used to better inform the investment process. Factors may help investors meet their objectives such as reducing risk, increasing returns, and increasing diversification by providing a better understanding of risk and returns. 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) smaller companies 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 Want more information on Factors by MSCI? Have an MSCI representative reach out to you. Factor indexes MSCI Factor Indexes are designed to help institutional investors seeking to capture the excess return of factors in a cost-effective and transparent manner. Factor indexes can be used to implement factors through a passive portfolio. A factor index can also bring transparency to factor allocations, helping to alleviate the well-known problem of manager style drift and may have positive implications for risk management. Due to the historical cyclicality of factors, investors may choose to diversify away from a single factor but do not want to dilute their exposure to their targeted factors or change the risk profile of their portfolios. MSCI’s Multiple-Factor Indexes provide building blocks that allow investors to assemble multiple-factor allocations based on their objectives for risk and return, their investment beliefs on individual factors, and their investability constraints. Read more Click on any of the factor icons below to learn more about the MSCI single factors: Learn more Learn more about MSCI Factor Indexes below or read more about Factors by MSCI in our Additional Resources. MSCI Single Factor Indexes MSCI Diversified Multiple-Factor Indexes MSCI Factor ESG Target Indexes MSCI Factor Tilt Indexes MSCI Factor Indexes are rules-based, transparent indexes targeting stocks with favorable factor characteristics – as backed by robust academic findings and empirical results – and are designed for simple implementation, replicability, and use for both traditional passive and active mandates. Read more Introducing our latest factor innovation – MSCI FaCS 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. Download the factsheet 0 seconds of 0 seconds MSCI FaCS and factor box MSCI has been setting global industry standards over the past 40+ years. Our obsession with data and new insights leads us to our latest factor innovation. Download the transcript The FaCS report With advancements in data and technology, factors now provide a transparent and systematic approach to understanding the true drivers of risk and return. The FaCS report allows investors to understand what is driving their investments and help them build better portfolios. In the report you’ll be able to: Compare point in time key exposures of 8,000+ Stocks, 11,000+ Mutual Funds and 1,500+ ETFs Compare historical key exposures (10+ years) of 8,000+ Stocks, 11,000+ Mutual Funds and 1,500+ ETFs Compare 11 GICS sectors factor exposures to understand the evolution of sectors and style factors Interactive experience bringing clarity to your investments Interact with the Report MSCI FaCSTM 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. Download the factsheet for more information. 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. Learn more about Factors by watching MSCI’s Factor Investing Webinar Series recording. Factor models Whether building portfolios, implementing strategies, or measuring performance, MSCI helps clients identify and solve for implementing factors throughout the investment process. MSCI’s 70+ Equity Factor Models and 100+ Multi-Asset Class Models utilize MSCI’s factor classification standard that has a detailed hierarchy including three distinct layers, Factor Groups, Factors (Systematic Equity Strategies), and Factor Descriptors. Incorporating factor strategies in portfolio construction can help: Managers differentiate their strategies Drive performance Understand factor exposures Manage risk and unintended bets Avoid risk of crowded trades Learn more about MSCI Analytics. Download the brochure By 1976 Barra (now part of MSCI) had created sophisticated models that predicted stock returns based on many different risk factors. Bionic Beta wins the 1970’s (Forbes, Feb 2014) Factor investing - empowering investors to achieve better outcomes MSCI helps clients build, implement and measure factor based strategies through consistent and transparent factor frameworks. As a leader in the application of factors for 40+ years, MSCI beginning with Barra invented a common language to explain risk and return through the lens of factors. Explore the MSCI Global Factor Framework interactive below which provides transparency in to our Global Equity Factor Model – Long Term Horizon (GEMLT): Download PDF MOMENTUM YIELD QUALITY LIQUIDITY VOLATILITY GROWTH VALUE SIZE Our research differentiates MSCI from the rest One of MSCI’s key competitive advantages is our research. We employ one of the largest research teams in our industry – which contains extensive academic credentials with broad financial and investment industry experience. We are dedicated to building the world’s finest index, portfolio construction and risk management tools – working on both developing new factor models and methodologies and enhancing existing ones. MSCI‘s rich factor hierarchy is built from the ground-up from aggregated fundamental and technical data. This is based on extensive research to identify common drivers of risk and return and back tested for relevance across markets and investment strategies. Our in-house team of more than 150 researchers blends academic research with practical experience and is continuously innovating to introduce new factors into risk models. MSCI factor investing webinar series Introducing MSCI FaCS Implementing MSCI FaCS Examining recent market events through factors ADDITIONAL RESOURCES Research paper: min vol indexes: 10 years on December 14, 2018 Mehdi Alighanbari and Shubhangi Sharma 2018 marked the 10-year anniversary of the MSCI Min Vol Indexes. We investigate changes in the indexes’ behavior before and after launching Read the paper Blog: factor investing goes multi-asset class December 11, 2018 Peter Shepard, Head of Fixed Income, Multi-Asset Class and Real Estate Research Factor investing is now going multi-asset class: to factor-based asset allocation and systematic strategy factors that push beyond equity selection. Read the blog Research paper: factor research best practices November 16, 2018 Dimitris Melas, Managing Director and Global Head of Core Equity MSCI factor models are based on robust econometric techniques and reflect best investment practices. Read the paper Research paper: the future of active investing November 8, 2018 Dimitris Melas, Zoltan Nagy, Navneet Kumar, Peter Zangari Integrating Factors in Market Indexes and Active Portfolios Read the paper Blog: capacity of factor index strategies October 30, 2018 Stuart Doole, Global Head of Index New Product Development Institutional investors have become interested in the ability of strategies that replicate factor indexes to persistently capture desired exposures Read the blog Discover how MSCI powers better investment decisions Learn More Our topics Daily Factor Indexes heat map MSCI Crowding Solution Factor investing research papers & blogs About MSCI Upcoming events and webinars Contact us Want more information on Factors by MSCI? 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