Factor investing has become increasingly popular in developed markets. In this paper, we show that they have worked in emerging markets as well. All six MSCI Emerging Markets Factor Indexes outperformed the parent index over a 15-year plus period, based on simulations. Investors seeking premia in addition to broad EM beta can explore factor index investing via this index series. Active EM managers can also benefit from these tools. Traditionally, they have mainly harvested EM beta, along with...

Recent U.S. equity market performance, driven by a significant decline in glamour (high-growth, high-momentum) names, has attracted a lot of attention from market analysts. By now it is well publicized that, despite the range-bound performance of the US equity market since March, there have been significant differences among the performance of various sectors of the economy.We contribute to this discussion by focusing on what we view as a rotation in investment styles. This rotation has been...

In this Research Insight, we examine Marginal Contribution to Risk and define two alternative versions of this measure: Marginal Contribution to Active Risk (MCAR), and Marginal Contribution to Tracking Error (MCTE). Since most industry practitioners regard “active risk” and “tracking error” as synonymous, this nomenclature has sometimes generated confusion. In this paper, we explain the similarities and differences between MCAR and MCTE and offer insights from our...

In this Barra Insight, MSCI analyzes several systematic allocation methods which aim to harness the benefits of low volatility investing. The variability in performance of minimum volatility portfolios makes them candidates for dynamic allocation strategies. We analyze volatility triggers, simple moving averages, and relative momentum as systematic methods of gaining exposure to this investment style in the most desirable time periods. The results indicate that the possibility exists for...

While inflationary pressures have increased across some Emerging Market countries, those equity markets could still be volatile and subject to country risk.  As these markets have matured, do they still provide an attractive opportunity set for the active manager?  Using the Barra Global Equity Model (GEM2) and Barra Single Country models, we examine measures of volatility and dispersion to highlight the scope of the opportunity set and its corresponding risks.  By applying...

US investors are bracing themselves for the potential expiration of the 2003 Bush dividend tax cut.  To help portfolio managers prepare for this potential change in the US tax code, this Market Report uses the rich factor structure of the Barra US Equity Model to examine these issues: (1) what effect the initial tax cut had on dividend-paying stocks, (2) the impact of this policy on the overall stock market, and (3) the change in dividend policies of the issuing firms.