“Deconglomeration” in the 1980s signaled a shift to corporate specialization, particularly in the U.S. We found that diversified firms have tended to lag the profitability and growth of their single-industry counterparts.

Listed U.S. real estate emerged as the second-best performing sector in Q3 2024. The recent decline in rates has likely boosted its appeal, but a more fundamental and compositional shift may have caught investors’ renewed attention. 

Sector investing offers a strategic approach for investors looking to gain exposure to distinctive segments of the economy — especially in the U.S. We sat down with experts from within MSCI, as well as with Vanguard’s, Andrey Kotlyarenko, to explore the ins and outs.

Over the last 20 years, most U.S. sectors had low performance correlations, suggesting that sector rotation strategies had the potential to improve portfolio return or that combining less-correlated sectors had the potential to reduce portfolio risk over that period. 

Mexico’s strong economic ties and geographic proximity to the U.S. are helping make it a top global destination for U.S. and other foreign companies’ new and relocated industrial operations, as well as strengthening many of its domestic companies.  

How does free float impact the performance and other characteristics of global equity benchmarks?  We examined changes in free float over the last 20 years and found that increases have led to positive price impacts, and vice versa.  

We examine how value investing could be implemented in a passive portfolio, using three generations of value indexes as a starting point for creating investment vehicles: traditional value, value- or fundamentally weighted and high-exposure value.

Over the last several years, most active growth managers underweighted the “Magnificent Seven.” Nearly two-thirds of growth managers, however, partially or more than offset the resulting performance drag with active bets on other stocks.

Noting the parallel between today’s technology- and AI-driven concentrated rally and the late 1990s’ technology boom, we examined factor performance and factors’ over- and underweights in the top 10 MSCI USA Index constituents over both periods. 

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. 

A survey of institutional investors and wealth managers offers insight on the thinking about equity factors, their role in asset allocation and how traditional factor strategies should evolve to serve an increasingly complex investment landscape.  

In 2022, unlike in the prior two years, stock selection took a backseat to style factors and industry bets as performance drivers. Top-performing funds gained from all three exposures, while bottom-performing funds lost on all counts.

As part of MSCI’s May 2023 index review, effective June 1, the MSCI USA Momentum Index will on average rebalance out of value and into many growth stocks, including some firms with an AI presence — reversing the 2022 trend away from tech. 

U.S. tech giants had a spectacular run over the past decade, but the tide has turned for many of these companies in 2022. We evaluate Big Tech’s descent and discuss the efficacy of building resilient portfolios.

Leading up to and including Nov. 8, Americans will vote for 35 Senate and all 435 of the voting House seats.

Markets experienced a brief ray of risk-on light during the third quarter, but investors quickly retreated back into the risk-off shadows as the Fed reasserted its tough stance on taming inflation. We take the temperature of the market and explore where we might be headed.

Popularized nearly 90 years ago, value investing has evolved into approaches that differ in investment process and execution.

The current high interest-rate regime has been favorable for value stocks. We believe that how a value strategy is constructed may have an impact, even in a market environment that has been tilting its way.

Direct indexing has prompted wealth managers to evaluate their implementation choices for individual clients. Our research focuses on aspects of the wealth manager’s implementation of direct indexing as well as tax optimization.

In uncertain markets potentially marked by aggressive central banks and wild swings in currency values, some investors have looked to sectors they believe will be resilient or to hedge currency exposures to help minimize portfolio volatility.

After years in the shadows, value stocks have emerged into the light this year, amid higher inflation and rising interest rates. We construct three distinct hypothetical versions of a value strategy to test the boundaries of various sector approaches.

The ratio of dispersion resulting from stock-specific factors as a percentage of the total increased over the past year relative to the prior two. We evaluate the active managers’ potential opportunity to outperform the market through stock selection.

Earnings estimates have fallen for U.S. firms, potentially indicating that recession fears may be influential. We analyze the impact of earnings and ratings as well as areas of the market with the widest range in analyst sentiment.

Russia’s invasion of Ukraine has added to an already-long list of concerns for global investors, which have led central banks around the world to reassess monetary policy, as they seek to balance economic growth and inflation.

Small caps are usually thought of as having a greater carbon footprint relative to their larger counterparts. 

As more investors incorporate ESG considerations into their investment decisions, some companies have changed their behavior, which has led to changes in their ESG profiles.

Given small-cap outperformance since March 2020, investors are asking how these stocks size up in terms of short-term valuation, sentiment and macro outlook? Longer term, might small caps help capture opportunities around thematic investing megatrends?

Market sentiment isn’t static, and we have seen that recently with the gradual reopening of the economy and its impact on the performance of small-cap companies.

Another way to deepen our understanding of small-cap stocks is to look at them through a style-factor lens. 

Momentum, by definition, rotates into securities with recent outperformance. That said, investors who view value and momentum as contra-signals may have questions about the value-momentum convergence and the divergence of momentum and growth.

Many look to market-cap indexes when comparing the performance characteristics of growth and value funds — including manager skill. We found a switch to style indexes reduced industry- and style-factor contributions and made manager skill more apparent.

U.S. equity markets have experienced increased volatility coupled with concentration in a handful of megacap companies. Has this hampered investors’ ability to capture factors effectively? Have stock-specific risks dominated factor indexes?

Growth and value indexes were created in the 1980s as finer tools than market-cap indexes to measure the performance of growth and value funds. Are style-specific indexes still a relevant choice to use as benchmarks for these funds?

Single-factor portfolios seek high exposure to a target factor and limited exposure to non-target ones. We assess the impact that common portfolio weighting schemes have on these exposures, as well as on portfolio efficiency, concentration and investability.

How to define a factor? It’s a challenge for asset owners and wealth managers in evaluating how well factor products meet investment objectives. We found an improved and more robust measure can be formed by combining multiple descriptors. 

Significant volatility during COVID-19 highlights a need for index reconstitution, but some may worry about trading costs and excess turnover. We investigate the balance between appropriate market representation and avoiding high index turnover.

Whether investors include a tactical approach or invest strategically for the long term, diversifying across factors, sectors and geographies has historically played an important role in portfolio construction. 

Value stocks generally underperformed the broad U.S. equity market over the past decade — just as they did in the late 1990s. What drove that underperformance? Was it consistent globally? Within U.S. sectors?

As interest rates in the U.S. started increasing in late 2015, many investors expressed concerns over the impact that rising rates could have on their investments. However, the tone of the U.S. Federal Reserve (the Fed) shifted from “we’re a long way from neutral” in October last year to a more accommodative stance of “we will be patient” early this year, re-emphasizing that expression at the January 2019 Federal Open Market Committee meeting.

The low size factor, or the premium that has been historically realized by investing in smaller sized companies over longer time periods, forms an integral component of many institutional portfolios. However, investors can choose different ways to making a low size allocation.

Making allocations to individual factors typically requires strong investment beliefs, as factor returns have been cyclical in nature. When weighing the pros and cons of different multi-factor indexed approaches, institutional investors often evaluate both bottom-up or top-down options. We consider the attractions of both, using a bottom-up approach to build a multi-factor index from stocks that are favorably exposed to the value, size, quality and momentum factors, compared with an...

Despite institutional investors, globally, continuing to allocate funds to indexed strategies, active management remains attractive across various products and geographies. The ability to select skilled managers in opportune markets who can add value beyond a indexed investment tracking an index, may justify the case for active implementation. We analyze different segments of the equity markets to find the intersection of those that have provided the greatest opportunity and where managers...

Momentum, the tendency of past winners to continue to do well in the near future, is used widely in risk models, quantitative strategies and, more recently, as the basis for factor indexes aiming to replicate the performance of this pervasive factor. But the academic definition of momentum is extremely difficult to implement because it tends to lead to high volatility exposure and excessive portfolio turnover. Our approach involves selecting securities based on risk-adjusted performance and...

The perennial appeal of value investing is based on the excellent long-term performance of global value stocks. Investors today use various approaches to identify and compare the exposure of stocks with "value" characteristics that help explain risk and return. In this Research Spotlight, we create a common definition of “value” and examine how value strategies can be implemented, in both active and passive portfolios, using three generations of value indexes as examples.

The perennial appeal of value investing is based on the excellent long-term performance of global value stocks. Investors today use various approaches to identify the exposure of stocks with “value” characteristics that help explain risk and return.  In this Research Insight, we create a common definition of “value” and examine how value strategies can be implemented, in both active and passive portfolios, using three generations of value indexes as examples.

Market capitalization-based indexes classify companies based on their country or region of domicile. This approach, however, does not reflect the sources of constituent’s revenues. In this paper, we show that the performance of companies is sensitive to the economies from which they derive their revenues, presenting potential opportunities for institutional investors. We discuss how investors can better understand their global, regional and country risk exposures, achieve global...

Starting in 2012, MSCI Research began exploring the impact of macroeconomic events on asset valuation and strategic asset allocation. The white papers summarized in this Research Spotlight provide the core findings in a continuing series, and are the basis of our growing suite of ‘macro models.’ For each paper you will find the full title, the credited authors, a short abstract, and a quick hyperlink to the full publication in our Research Library.

Factor-based investing has become a widely discussed topic of today's investment canon. In this paper - which is the last delivery of a four-paper series focusing on factor investing - we discuss the combinations of Factor Indexes taking as an example the MSCI Quality Mix Index.The MSCI Quality Mix Index is an equal weighted combination of the MSCI Quality, Value and Minimum Volatility Indexes. Academic research shows that quality, value and low volatility strategies have not only...

Over the recent years, the impact of the macroeconomic regime on their investments has grown in importance for institutional investors. As a result, institutional investors have started explicitly accounting for macroeconomic conditions in their asset allocation decisions.This paper attempts to provide a framework for designing macro-sensitive portfolios, building on historical analysis using our 40+ years' history of MSCI Factor and Sector Indexes, and a long-term analysis based on the...

An accumulating body of empirical research has found positive gross excess returns from exposure to risk factors (or risk premia). Our study was commissioned by the Norwegian Ministry of Finance to explore factor strategies, through the lens of risk premia indices, for large funds. The paper examines equity risk premia, such as value, size, low volatility and momentum, focusing on return, risk, and investability. For portfolios of large scale, we construct risk premia indices which have...