Drawing on 35 years of data, we show that the fundamental characteristics of the MSCI Minimum Volatility Indexes have remained consistent with the expected behavior of the low-volatility factor — to perform well in turbulent markets.

An analyst’s equity opinion encompasses how different interrelated forces may impact the future performance of a company. We sought to define the analyst-sentiment factor, while assessing its relationship with other traditional equity style factors. 

Value rebounded in 2021, after more than a decade of lackluster performance. No matter what the expectation going forward, there are useful lessons to be learned from value strategies’ behavior over the past two decades.

Innovation investing has gained momentum over the past few years. Our research focuses on systematically investing in companies that seek to capitalize on opportunities created by megatrends and innovation-driven themes.  

Inflation in the U.S. and many other countries has accelerated for more than a year, so we reviewed the performance of the MSCI USA factor and sector indexes over that time period as well as the sensitivity of each index to inflation. 

Stock-level inflation sensitivity can help investors assess a portfolio’s exposure to inflation. We use this metric to construct hypothetical portfolios aligned with investors’ range of views on inflation.  

Inflation and the chatter around inflation have been rising since last year (as shown in the exhibit below) following years of relatively tame inflation. This macroeconomic shift is likely to have both a short- and long-term impact on asset prices and has raised many important questions for investors.

The holiday season may only exacerbate supply-chain challenges affecting the availability and prices of goods. In this inaugural edition of Spotlight on the Markets, we analyze performance and how investors are working to rise to the occasion.

We looked at ways to mitigate some of the performance drag of stock-specific risk on value strategies over the last decade by directly controlling for this risk without negatively affecting value-factor exposures or contributions.

We expand on our analysis of industry momentum to assess the persistence of a premium across different regions and the ability of a rules-based strategy to help investors as they seek to capture this premium.

For investors who use yield strategies to generate income, a steady stream of dividend payments is important. But with more companies using buybacks as a way to redistribute profits, investors may want to consider a more holistic view of income.

Stock-level momentum has been a strong-performing factor, historically, but industry-level momentum has also shown significant historical premium. While the two were closely related, unique information was embedded in each and a combined momentum factor outperformed each individually.

Depending on a number of factors, stocks may be added to indexes soon after a company’s IPO, which can affect asset managers who use the indexes to create and benchmark portfolios. We investigate the impact of IPO stocks on index performance.

Unintended exposure to non-value factors was a large contributor to value’s period of underperformance. We investigate value-portfolio construction when controlling for these exposures while maintaining maximum exposure to value factors.

In today’s low-rate world, some investors shifted toward historically higher-yielding equities. For others, especially in the insurance industry, the greater risk limited their ability to do so. Was a minimum-variance equity approach a viable option?

Whether constructing a fundamental factor model, a value strategy or a value index, valuation ratios need context. Time-series and cross-sectional approaches each have pros and cons. But combining the two may have presented a clearer picture. 

In the second post in our series, we further probe value’s underperformance over the past decade and ask if the historic definition of value remains relevant. We specifically look at whether a company’s valuation can be enhanced by reflecting R&D investments. 

Despite a recent performance lift, many still ask whether the value factor is broken. We analyze the reasons behind its underperformance and start exploring the potential of updates to value definitions and approaches to value-portfolio construction.

Lower fixed-income returns have led some insurance companies to revise asset allocations. While equities can potentially increase performance, returns have been more volatile, even over longer horizons — and insurers may have limitations on equity allocations. Is there an efficient way for insurers to include equities, as well as ESG-aware investments in their investment strategy?

Growth has sometimes been viewed as the opposite of value. By extending the concept of growth at a reasonable price, we were able to capture the growth premium without it being lost to unintended factor exposures.

While many stocks were in the red in mid-March, as COVID-19 and oil-market shocks took hold, some were “redder” than others. We examine global markets to better understand the characteristics of the more resilient stocks during this period.

Growth strategies have outperformed value strategies in recent years. Is growth’s recent performance an anomaly when we look at it in a long-term context? The answer: It depends on what you mean by a growth strategy.

Low-volatility indexes have been attractive to some investors, mainly due to their defensive and low-risk characteristics.

While used extensively by active managers as part of their security-selection decisions, the growth factor has been largely left out of the factor-index investing landscape, at least in its simplest form. This paper explores why and offers a way to capture this factor with a systematic, rules-based approach.

As we head further into 2019, some of last year’s concerns, including market volatility and interest-rate uncertainty, continue to occupy investors’ minds. With the assumption that rates-related concerns continue and uncertainty looms in the global equity markets, the question is how minimum volatility indexes behaved in an environment dominated by these two opposing forces.

2018 marked the 10-year anniversary of the MSCI Minimum Volatility Indexes. Launching just prior to the global financial crisis, which caused sharp equity market falls, and the indexes’ behavior “out-of-sample” since launch have led to adoption by a large number of asset owners and the indexes’ serving as the basis for a wide range of ETFs that have gathered significant assets. Here, we contrast 10 years of live data with the previous 10 years of backtesting, investigating changes in the...

As the more alarmist discussion of factor meltdowns due to crowding has dissipated, institutional investors have turned toward understanding the investment capacity of factor-based strategies. The key question is to gauge how much capital can be invested in funds that replicate factor indexes before their return expectations diminish to unattractive levels. In this Research Insight, we use characteristics of factor indexes to gauge their capacity, using the MSCI Minimum Volatility Index as a...

Institutional investors are moving toward integrating ESG criteria into their portfolios and their factor allocations in particular. But they face key challenges in doing so: How can they enhance their strategies’ ESG profiles while achieving the desired exposure to their target factors? Our research shows this can be achieved by simultaneously incorporating ESG integration alongside factor exposure targeting in index construction. The MSCI Factor ESG target indexes’ “one-step” approach...

Low volatility is one of the few factors that have historically performed well in turbulent markets. Moreover, over long periods of time, this defensive strategy has produced a premium over the market, contravening one of the most basic theories in finance — that one should not be rewarded with greater returns for taking less than market risk. Since the global financial crisis hit in 2008, low volatility has garnered increased attention from institutional investors. In this paper, we explore...

Multi-factor index fund allocations are increasingly becoming the preferred approach to factor investing. In this paper, we examine the return/risk characteristics of nine static and dynamic weighting strategies over a 36-year period. The results highlight that a simple strategy that equal weights multiple factor indexes has historically proved more effective than many of the more complex approaches - pointing to its potential as a way to combine factors, especially in the absence of...

With Research Spotlight - MSCI Factor Indexes in Perspective:Insights from 40 Years of Data, we launch our new publication called the Research Spotlight. IEach paper in the series, we will focus on the key findings of a longer white paper, summarizing the research for a non-technical audience. While certain readers will be drawn to the longer publication for the full scope of the study, the Research Spotlight affords a quick and focused summary for those interested in a concise...

Until recently, MSCI had calculated 25 years of simulated history for its factor indexes. In this Research Insight, we extend the simulated history to 40 years, providing new insights into the behavior of factor indexes over various time periods. We look at factor index behavior over various time frames; the changes in the correlation between factor returns over this period; historical variations in valuation of factor indexes and their exposure to GICS sectors. We also use IndexMetrics,...

Until recently, MSCI had calculated 25 years of simulated history for its factor indexes. In this Research Insight, we extend the simulated history to 40 years, providing new insights into the behavior of factor indexes over various time periods. We look at factor index behavior over various time frames; the changes in the correlation between factor returns over this period; historical variations in valuation of factor indexes and their exposure to GICS sectors. We also use IndexMetrics,...