Our analysis of data spanning the last 18 years indicates that systematic options strategies linked to the MSCI EAFE and MSCI Emerging Markets Indexes have consistently exhibited lower risk and lower drawdowns compared to their parent indexes.  

We introduce an integrated framework to investing in individual country and regional markets, analyzing macroeconomic risks and new growth opportunities as well as the role of sustainable investments in a globally diversified portfolio. 

No clear guidance presently exists on ESG and climate reporting for derivatives. Using input from market participants, regulatory guidance and a survey of existing research, we propose a framework for more transparent reporting to include derivatives. 

Higher equity and bond correlation combined with increased index concentration suggest now is a good time to revisit allocations across regional, country, sector, style and thematic exposures for adequate portfolio diversification. 

China’s large share of emerging-market (EM) equities and its falling correlations with EM are leading some investors to allocate separately to the two universes. A tactical overlay of futures and swaps could be used to adjust regional exposures. 

Our quarterly roundtable examines markets, and market-moving events to help institutional investors as they determine the best way forward; across asset classes and parsing out differences between developed and emerging markets.

Eclipsing equity and bond yields and high crowding may be signs of a vulnerable equity market. We compare equity/bond yield spreads in the major regional markets along with crowding in sectors and regions.  

The cost of hedging downside equity exposure has fallen substantially versus eight months ago, markedly lowering the price of insurance against rising equity volatility.

Our panel of experts discusses the issues on investors minds and scenarios for what may come next. From inflation “stickiness” to market concentration to central bank actions, how have conditions varied across the globe?

Investors face “sticky” inflation, equity-market concentration and expectations that U.S. interest rates may be higher for longer. We examine recent global-markets trends to help as asset allocators and portfolio managers determine their next move. 

Themes such as robotics and AI, internet innovation, autonomous technologies and the digital economy — all featuring companies in the AI supply chain — have emerged as some of this year's top performers. Following a 2022 that was not kind to such firms, we examine this trend. 

Derivatives linked to climate investing are in the early stages of product innovation and investor adoption. We compared the impact, financial risk and opportunity metrics for futures on the MSCI Climate Action Indexes.  

Following up on research showing why more short-dated options did not increase equity-market volatility in the U.S., we ask a similar question across regions to help global investors evaluate their portfolios.

Trading of U.S.-listed options more than doubled in 2022 compared to 2019 — as investors gradually gravitated from monthly to weekly to even daily options over those four years. Some have wondered if this could lead to greater equity-market volatilty.

The recent banking crisis startled the credit markets while the broad equity market remained resilient. We analyze net long-short positions as investors adjusted their index futures exposures to adapt to changing market dynamics.  

The first quarter of 2023 came with its own set of surprises for investors, whether looked at through the lens of market returns, factor returns and trying to figure out Central Banks... not to mention the fallout from some notable bank failures. We examine it all with Hitendra Varsani and Mark Carver.

Global equities and bonds remained volatile in the first quarter of 2023 following a strong start and a bumpy finish due to global banking concerns. We analyze whether factor valuations have adjusted to the new interest rate environment.  

Investors benchmarked to global and regional indexes may use index futures for hedging or asset-allocation decisions. We analyzed the intra-day volume patterns of futures linked to the MSCI World, MSCI EM and MSCI EAFE Indexes to illuminate pockets of liquidity.

There are varying risks and opportunities for emerging markets (EM) equities in Asia. We highlight EM Asia futures as a potential path for asset allocation, tactical adjustments and risk-management purposes.

Investors in emerging markets begin the year with historically low valuations and softened U.S. dollar strength. With a wide decoupling within these markets, we assess the consideration of multi-country, multi-currency or single-country futures.

Investors look to clear the slate after a volatile year in the markets, with both global equities and bonds declining against a surge in inflation, waning economic growth, geopolitical tensions and monetary tightening. We take a look at market conditions, valuations and investor allocations as we assess what might be impactful in 2023.

Global equities and bonds declined in 2022 against a surge in inflation, waning economic growth and monetary tightening. We highlight how factor indexes, country allocation and thematic investing can help investors capture opportunities with greater precision.

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.

Geopolitical and macroeconomic risks have persisted, and investors remain concerned about ongoing turmoil. We assess market volatility while analyzing whether investors are hedging their portfolios going into the final quarter of 2022. 

Investors remained fearful of inflation and recession worries in the third quarter of 2022. We take a closer look at beta in a period where factors were sensitive to changing market conditions.

Our guests analyze the drivers of the worst six-month start to the year on record for global equities, in nearly half a century, and look at how investors are approaching allocations headed into the second half of 2022.

While investors may aim to synthetically replicate equity indexes using a basket of local-index futures and currency forwards, our research focuses on potential country and currency risk as well as tracking error of these efforts. 

It was a challenging market environment in the second quarter. We take a closer look at real assets, defensive sectors and factor indexes as investors navigate what might be a prolonged period of volatility and uncertainty.

Carbon markets can play a significant role in managing carbon risk within equity portfolios to hedge against price risks. Our research focuses on applications, carbon-risk management and correlations to other assets classes.

The carbon market can play a significant role in the decarbonization of the global economy by putting a price on carbon and giving polluters an incentive to reduce their emissions.

In the face of continued global equity-market volatility, we turn to the listed-options market to gauge investor perception of market risk over the coming months for EAFE, emerging markets and the U.S.

While the share of U.S. technology firms with a substantial drawdown has risen fast, it is not yet at the level of the early-2000s technology crash. It is, nonetheless, worth examining what lessons we might pull from the wreckage of that time.

We examine liquidity-related statistics for options linked to MSCI indexes and listed on several global and local exchanges

The first quarter of 2022 started with concerns about inflation and the potential for low growth — conditions many of today’s investors haven’t seen outside of textbooks. By the end of February, the war in Ukraine had introduced even more volatility. Our latest quarterly check-in digs deep into these issues and more.

It was a tale of two quarters in many ways. We analyze the effects of past and present military conflicts on factor investing to provide insights to investors seeking to build resilient portfolios.

Futures linked to MSCI indexes are increasingly being used as a tool to manage market exposure and maintain exposures to target investment benchmarks.

Faced with volatile markets, some have looked to options strategies to manage volatility or target alternative risk/return profiles. We evaluate historical performance of options-overlay strategies across various macro and volatilty regimes.

Classic risk-control uses cash and/or U.S. Treasurys with a growth asset, typically referenced to an equity index, which has stabilized volatility, but not always allowed strategies to reach their full potential. We present new approaches for doing so.

As commitments to reach net-zero by 2050 surge, institutional investors are looking for tools to implement net-zero strategies in portfolios. Futures linked to the MSCI Climate Paris Aligned Indexes are one option for asset managers and asset owners.

As investors ponder the next move for economic growth, the effects of inflation and the Fed’s signaling they’re about to take away the punchbowl, we look at how different yield curves have shaped factor performance and the effects of various inflation/growth scenarios.

Whether due to stimulus, deglobalization, decarbonization or an overheating economy, higher inflation could have an impact on style-factor and sector performance. We investigate this impact in the context of two potential economic-growth regimes.

If economic expansion and higher inflation continue in 2022, interest rates could rise around the world. As investors re-evaluate equity portfolios, we look at factor-index performance in different U.S. interest-rate and yield-curve regimes.

Environmental, social, and governance (ESG) investing is a very broad field with many different investment approaches addressing various investment objectives across asset classes. While there are many studies relating to ESG in equities, the risk assessment of ESG considerations within fixed income may be equally if not more important. 

In the wake of the volatility seen over the last few days of the third quarter of 2021, we check back in with Hitendra Varsani about what happened, what may have been behind it and what MSCI’s multi-factor model showed as of Sept. 30, 2021.

Throughout the third quarter, investors shifted attention to risks from inflation, tapering and potential interest-rate rises. We analyze global equities and the rotation toward defensive factors.

Concerns over corporate leverage in China, and nervousness about inflation and the direction of interest rates were just a few of the reasons behind the shift toward defensive factors in the third quarter. We analyze the third quarter from three continents, with MSCI’s Hitendra Varsani, Mark Carver and Shuo Xu.

Sustainable investing is on the rise around the world. We review four case studies involving global equities as a way to explore how investors could have used sustainable derivatives when managing ESG and climate-transition risk exposures.

Disperse markets have historically provided opportunities for active managers to outperform their respective benchmarks. We showed that, based on historical trends, CSV helped shed light on identifying where the dispersion was greatest.

As the second quarter of 2021 drew to a close and the global economy continued to reawaken, the big stories were the resurgence of value, the positive correlation between value and momentum and the potential for inflation. What can history and factor ETF flows tell us about our current conditions? Executive Director of Global Solutions Research, Hitendra Varsani, is back, along with BlackRock’s Robert Hum and Patrick M. Moraniec, Senior Investment Manager of International Equity for the State of Michigan Retirement System.

In the latest edition of Factors in Focus, we look at flows into equity factor ETFs and whether it has been profitable, historically, to follow the money, along with our analysis of factor and factor-index performance over the second quarter.

Value has historically outperformed in economic recoveries. With the reopening of the global economy we examined value’s performance against other factors, and exposures from our adaptive multi-factor model at the end of Q1. 

Despite a decade or so of disappointing performance, value’s recent uptick merits examination into what drove its performance historically, and if conditions have changed or if the factor needs to be redefined. We look at near- and long-term performance with Hitendra Varsani, Executive Director, Global Solutions Research, and Saurabh Katiyar, Executive Director, MSCI Research.

After 15 years of challenging performance, many have asked if value is still a valid investment strategy. But the reopening of the global economy following vaccination rollouts has reignited interest across stocks, sectors, countries and regions.

ESG investing makes up an increasingly large footprint in equity portfolios, but ESG integration in bond portfolios is still in its early days. We examine the characteristics that make high-ESG-rated corporate-bond portfolios distinct.

In this two-year-anniversary edition of Factors in Focus, we reflect on the historical relationships between factor returns and macro cycles, which have provided useful information for investors looking to take an active stance on factor exposures based on their outlook.

How did incorporating ESG factors affect the performance of corporate-bond portfolios? Did ESG add insights beyond credit ratings? How did ESG impact risk and performance of investment-grade and high-yield bonds? Short-dated versus long-dated bonds?

Global equities continued to rally in Q3, brushing aside fear of a second wave of COVID-19 and a large economic slump. We review what it meant from an equity and fixed-income factor perspective and look at what our models showed headed into Q4

COVID-19 has had a profound impact on how companies manage cash flows and liquidity. Bond investors face the possibility of increased leverage, rating downgrades and defaults. Can factors and ESG metrics shed light on these risks?

We spoke with Hitendra Varsani about the latest factor trends across equity and fixed income markets. Where did we see outperformance during the second quarter? What did MSCI’s Adaptive Multi-Factor Allocation Model show as we moved into Q3?

As markets rallied worldwide, investors took on high-beta exposure and rotated away from stocks with lower risk. The latest edition of Factors in Focus explores the details.

We’ve previously noted growth in derivatives contracts to manage emerging-markets exposure in normal and stressed times. Now, facing a real-world stress test, how did investors use these tools? How have implied volatilities and option premium changed?

The volatility seen in equity markets was also present among investment-grade corporate bonds,. We use factors and ESG ratings to dissect these bonds’ performance over Q1 2020.

We analyzed the market effects from COVID-19 and a Saudi Arabia/Russia oil-price war. We also examined – for the first time – credit factor performance. How did the quarter play out? What did our adaptive multi-factor model show as it ended?

Factors have gained popularity in equity investing for providing insight into the key drivers of portfolio risk and returns. Did tilting hypothetical fixed-income portfolios toward some bond-specific factors benefit investors?

Could factor investing offer a risk-return edge in USD investment-grade corporate credit? We simulated the past performance of six fixed-income factors — value, low size, quality, momentum, carry and low risk — that broadly align with MSCI’s equity factors.

Some global equity markets reached all-time highs and experienced limited bouts of volatility over the course of 2019. But underneath the calm surface, we saw a high degree of dispersion among factors and sectors.

Emerging-market (EM) equities have delivered unique risk and return characteristics over the last 30 years. Are futures on EM stocks a liquid enough means to gain exposure during normal and stressed conditions?

The momentum-value spread saw one of the largest corrections in history over the summer. What does our model show going forward?

Investors seeking to more tightly manage their exposures to regional or global benchmarks are turning to multi-country multi-currency futures.

We review factor performance over the second quarter, provide the perspective of a long-term view and look to indications from our adaptive multi-factor model heading into Q3.

We highlight the fast-moving rotation among factors that continued during Q1 2019. As we move into Q2 2019, this framework showed allocation changes in different factors.

We have seen substantial rotation in factor index performance in the past 12 months. Value, the best-performing equity factor index in the second half of 2016, was the worst performer in the first six months of 2017.