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.

The recent peak of interest around goal-based allocation as a useful and practical framework to assist with complex asset allocation problems within the wealth management community, has led to MSCI implementing a goal-based asset allocation application which sits within WealthBench. This paper illustrates the benefits that the new Goal Metrics application will bring to financial advisors and their clients. The intuitive nature of our asset-liability methodology, allows financial advisors to...

The Federal Reserve recently kept its quantitative easing policy in place for now, but as the economy improves, the Fed will likely taper its stimulus program.  When this tapering begins, how will investors prepare for this unprecedented event?  In this paper, we demonstrate the MSCI Macroeconomic Model, exploring how economic conditions might change enough to motivate the Fed to commence tapering; we combine this analysis with the Barra Integrated Model to explore how economic...

Our previous papers in this series provided a framework for defining macroeconomic risk and its impact on asset pricing.  Those papers showed how portfolios vary in their long-term return’s correlation with macro economic shocks, which implied that so-called “high cash flow beta” assets should receive a premium relative to the market portfolio. In this paper, we show how our framework can be applied to strategic asset allocation. We label assets as either risk premium...

Our previous papers in this series showed that cash flow betas relative to economic growth vary by asset class and portfolio type. In this paper, we show that assets with higher cash flow betas receive a higher long term return, and that return is a compensation for the macro risk exposure. We label those holdings risk premium assets. We further show that long‐term portfolio risk can be attributed to multiple macro factors, such as persistent shocks to real GDP, and inflation. We show...

In this paper, the second in a series, we show that cash flows earned by different equity portfolios can respond differently to persistent macroeconomic shocks to real output, and that these differences can emerge over longer time horizons. Portfolios with cash flows that exhibit a greater long‐run response to macro shocks can command a higher expected return in the long run. As with any other return, the higher long‐run expected return for these portfolios is compensation for...

Global economic conditions have seen a weak recovery since 2008, with major economies experiencing sub-par growth rates relative to long-term trend growth. As a result, investors are interested in designing portfolio strategies that explicitly recognize macroeconomic risk. The design of macro-sensitive portfolio strategies relies on how we define macroeconomic risk and measure the relationship between asset prices and macroeconomic risk. In this paper — the first in a series that...