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MSCI Multi-Factor Indexes 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 indexes such as MSCI EAFE, MSCI ACWI,MSCI World and MSCI Emerging Markets. MSCI offers investors insight for dynamically managing their custom Multi-Factor Index through a new analytical tool called IndexMetrics.

“Combining factor indexes makes sense from a diversification standpoint,” said Remy Briand, Head of MSCI Index Research. “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.”

Equity factor investing was pioneered in the 1970s based on research, data and analytics created by Barra – today an MSCI company. In recent years, MSCI has developed a range of indexes that provide institutional investors with a basis for implementing a transparent and efficient passive approach to seek the excess returns historically obtained through active factor investing. In 2008, MSCI introduced the industry’s first Minimum Volatility Index. Today, more than USD 60 billion in assets are benchmarked to MSCI Factor Indexes1.

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.”

MSCI has published a series of research papers that describe the financial science behind factor-based investing and the effects of diversifying across multiple factors, as well as explaining various use cases for factor indexes by institutional investors considering factor allocations.

• Foundations of Factor Investing
• Deploying Multi-Factor Index Allocations in Institutional Portfolios
• MSCI Index Metrics - An Analytical Framework for Factor Investing