Factor Investing

About Factors by MSCI

In investing, a factor is any characteristic that can explain the risk and return performance of an asset. Beginning with Barra in 1976, MSCI has researched factors to determine their effects on long-term equity performance. Our factor indexes and models, developed in consultation with the world’s largest investors, are backed by research based on 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.

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 enhancing diversification by providing a better understanding of risk and returns.

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 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.

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Click on any of the factor icons below to learn more about the MSCI single factors:
 

MSCI FaCS ^TM – A common language for implementing factor investing strategies

Based on MSCI’s Global Equity Factor Model, MSCI FaCS includes eight factor groups, and 16 gactors.

Factor investing is transforming the way investors construct and manage portfolios. The increasing popularity of factor investing can create the need for standards.

Beginning with Barra, MSCI has helped establish 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 (PDF, 535 KB) (opens in a new tab)
 

MSCI FaCS^TM

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 from September 2003 to December 2016. Within the Factor contribution, style Factors made up the largest portion of active returns – 35%.

MSCI FaCS creates a common language and set of 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 to 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 eight factor groups.

Download the factsheet for more information.

MSCI factor box

The Factor Box, powered by MSCI FaCS, 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 that, 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 make better informed decisions on fund selection, fund monitoring and holistic portfolio analysis based on their fund exposures and investment objectives.

Factor models

Whether building portfolios, implementing strategies, or measuring performance, MSCI helps clients identify and solve for implementing factors throughout the investment process. Our latest models include factors like sustainability, crowding and machine learning that helps investors better understand the characteristics that drive portfolio risk and performance as market conditions change. These factor models help:

• Better understand the factors that drive portfolio risk and performance
• Build more adaptive, resilient portfolios that reflect modern investor views
• Access and customize solutions to suit your process

Read More about MSCI Equity Factor Models.

Download the brochure (PDF, 2.3 MB) (opens in a new tab)

To know about MSCI Factor Analytics solutions, click here.

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 over 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):

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 with extensive academic credentials and 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.