Multi-asset class factor models

We see a shift towards investors seeking outcome oriented strategies to help balance risk profiles with return targets. Multi-strategy, outcome-oriented and balanced funds, are all exposed to a broad set of risk and return drivers that are dynamic in nature, with interrelationships that change over time. Multi-Asset Class Factor Models help investors more clearly identify the drivers of risk and return in these complex, dynamic strategies.

The MSCI Multi-Asset Class Factor Model provides:

• Factor-based asset allocation to target key drivers of risk and return
• The identification of systematic strategies in equities, fixed income, commodities, and currencies
• Improved communication of portfolio exposures at different levels of granularity for different audiences

Asset classes are vehicles to gain exposure to drivers of risk and return

Factors have been proven by academic research for many years to exist across asset classes. Factor-based asset allocation can help:

• Simplify thousands of exposures to a smaller set of key risk and return drivers
• Reduce the number of risk and return forecasts and validate those choices
• Target risk factors with historical positive risk premia
• Make multi-asset class portfolio exposures easier to communicate

Factor based asset allocation provides a deeper lens into the key drivers of risk and return. As portfolios transition from traditional asset class allocation to a factor based allocation process, MSCI’s MAC Factor Model can help investors focus on factor exposures across asset classes in in a consistent manner.

MSCI’s latest factor innovation, the MSCI Multi-Asset Class Factor Model (MSCI MAC Factor Model), provides high to low granularity in looking at factors through an integrated and consistent framework.

The MSCI MAC Factor Model provides the following support and insights for global investing.

Supports factor-based asset allocation

• A consistent, integrated framework between high-level and detailed factors across asset classes
• Link asset class decisions to manager and security selection

Capture systematic strategies across asset classes

• Introduce systematic strategy factors beyond equities
• Multi-asset class systematic strategy factors distinguish factor betas from alpha and traditional beta

Provides multiple levels of granularity to communicate global, MAC exposures

• Align factor granularity with reporting to maximize effectiveness
• Consistent risk and return attribution

The MSCI Multi-Asset Class Factor Model

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Factor allocation across asset classes

The changing investment landscape and access to a greater number of multi-asset class factors is shifting many portfolios to actively allocate across asset classes. As the demand for new sources of alpha across asset classes increase, there is a need for a multi-tiered, multi-asset class factor model to provide consistency throughout the investment process.

The MSCI Multi-Asset Class Factor Model provides further insight and control into multi or single asset class investing. The tiered structure of the MSCI MAC Factor Model allows multiple levels of granularity.

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Asset allocations in a multi-asset class portfolio

The MSCI Multi-Asset Class Factor Model helps investors navigate the complex nature of the global markets. It is difficult to target and optimize global and systematic themes such as global credit, EM equity or EU sovereign spread in the construction of a portfolio. The MSCI MAC Factor Model enables investors to implement additional assets in order to better manage total portfolio investment objectives.

Download the MSCI Private Infrastructure Modelling Service factsheet to learn how infrastructure holdings impact a multi-asset class portfolio’s risk.

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Applications

The MSCI Multi-Asset Class Factor Model helps solve some of the challenges in managing and communicating factor exposures in a portfolio by:

• Provides consistency across asset classes
• Supports factor-based asset allocation
• Introduces MAC systematic strategies
• Simplifies communication of key exposures with the appropriate level of granularity
  • Detailed exposures for portfolios managers
  • Core exposures for asset class managers
  • Global exposures for asset allocators