MSCI unveils new multi-factor indices

Dec 3rd, 2013 | By | Category: ETF and Index News

MSCI, a leading global index provider and a major supplier of indices to exchange-traded funds (ETFs), has announced the launch of the MSCI Multi-Factor Indexes, a suite of indices designed to offer institutional investors a basis for passively implementing index-linked multi-factor strategies transparently and cost-effectively.

MSCI unveils new multi-factor indices

Alain Dubois, Head of Index Product Development for MSCI.

The indices are available in standard combinations provided by MSCI or as a custom mix created by the client.

Both approaches can be based on underlying flagship indices such as MSCI EAFE, MSCI ACWI, MSCI World and MSCI Emerging Markets.

Remy Briand, Head of MSCI Index Research, said: “Combining factor indexes makes sense from a diversification standpoint. Factor returns have historically been quite cyclical, with some factors underperforming the market cap-weighted benchmark for several years in a row. Combining factors has historically yielded a smoother ride over time.”

Alain Dubois, Head of Index Product Development for MSCI, said: “MSCI is the first index provider to give institutional investors tools that provide an easy way to analyze and adjust their allocations among factor indexes when their views of the market change. We are essentially providing them with the flexibility to actively manage their passive factor portfolios.”

Briand added: “Factor indexes should not be viewed as replacements for market capitalization weighted indexes. Market cap indexes represent broad and neutral market exposure. They also aim to minimize turnover and are macro consistent. They are complementary to factor indexes and can be used for benchmarking the performance of factor strategies.”

Factor indices represent the return of factors (common stock characteristics) that have historically earned a persistent premium over long periods of time. MSCI launched its first factor index in 2005 and the industry’s first minimum volatility index in 2008, followed by an extensive suite of factor indexes based on MSCI cap-weighted parents.

Today, more than $60 billion in assets are benchmarked to MSCI Factor Indexes, including many billions within ETFs. The provider’s minimum volatility indices have proved particular popular with ETF investors. These indices are constructed to experience reduced volatility, avoid unintended bets on countries, sectors and styles, and provide superior risk-adjusted performance while maintaining the investability and replicability features of the parent cap weighted indices.

Widely held ETFs linked to these indices include the iShares MSCI Emerging Markets Minimum Volatility ETF (EEMV) with $2.6 billion in assets, the iShares MSCI USA Minimum Volatility ETF (USMV) with $2.4 billion, the iShares MSCI All Country World Minimum Volatility ETF (ACWV) with $1.1 billion and the iShares MSCI EAFE Minimum Volatility ETF (EFAV) with $920 million.

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