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MSCI, a leading global index provider, has launched a pair of new MSCI Market Neutral Barra Factor Indices targeting two fundamental Barra style factors: Momentum and Volatility.
Created in cooperation with, and licensed to, JP Morgan, the new indices are designed to reflect the performance of a theoretically “pure” single factor return for a given region, while remaining investable, replicable and with controlled turnover.
The indices are also designed to reflect the performance of a market neutral strategy which has historically exhibited low correlation with the performance of the broad equity market.
The MSCI Europe Market Neutral Barra Momentum Index targets high exposure to the momentum factor across European developed markets, with low exposure to all other market factors including country, industry and other style factors (such as size, value, growth and more). Similarly, the MSCI Europe Market Neutral Barra Volatility Index targets high exposure to the volatility factor, with low exposure to all other factors.
Factors have long been recognised as key drivers of market performance, and today, factor-based investing is a growing trend among a number of institutional investors. An example of this was the recent seeding of four new factor-based ETFs linked to MSCI indices – namely the iShares MSCI USA Momentum Factor ETF (MTUM), the iShares MSCI USA Size Factor ETF (SIZE), the iShares MSCI USA Value Factor ETF (VLUE) and the iShares MSCI USA Quality Factor ETF (QUAL) – by the Arizona State Retirement System (ASRS).
Commenting on the new indices, Baer Pettit, Managing Director and Global Head of the MSCI Index Business, said: “We are pleased to have had JP Morgan’s input in developing these new indices. By leveraging the combined strengths of our MSCI index and Barra analytics products, MSCI can provide institutional investors with a unique set of tools in an environment where they are increasingly observing style factors as important drivers of equity market risk and return.”
Rui Fernandes, Managing Director and head of Equity Derivatives Structuring at JP Morgan, added: “We are excited to license these indices to create products that fill an important product gap, allowing investors to access Barra style factors in an investable format.”