MSCI unveils multi-asset factor analytics model

Jan 30th, 2019 | By | Category: ETF and Index News

MSCI has unveiled a new model for investors which provides factor-based portfolio analytics across asset classes.

Peter Zangari, Global Head of Research and Product Development at MSCI.

Peter Zangari, Global Head of Research and Product Development at MSCI.

The MSCI Multi-Asset Class Factor Model goes beyond equities exposure and includes fixed income, commodity, and currency asset classes. The model also offers asset allocation that assists investors in building factor-based portfolios.

According to MSCI, the model aims to help investors transition from traditional asset allocation to factor-based asset allocation, identify and implement systematic strategy factors across asset classes, simplify thousands of exposures across asset classes to a set of key risk and return drivers, and make multi-asset class portfolio exposures easier to communicate.

“The growth of factor investing has transformed the way investors view their portfolios, underscoring the importance of factor awareness in active portfolio management,” said Peter Zangari, Global Head of Research and Product Development at MSCI. “As leaders in research-driven factor and multi-asset class model innovation, we are committed to helping our clients navigate the complex nature of the global markets and enhance their investment approach.”

The model has been unveiled at a pertinent time, as the popularity of factor-based investing continues to rise. According to ETF industry consultant ETFGI, net inflows into smart beta ETFs amounted to $77.6 billion in 2018, bringing total assets under management within that category to $618bn as of the end of the year.

The five-tiered structure of the MSCI Multi-Asset Class Factor Model allows for multiple levels of granularity, from nine top-level factors in tier one to over 3,500 factors in tier five. The integration between tiers helps bridge the gap from construction to communication between the board, CIO, and portfolio managers.

Source: MSCI.

Tier one helps investors set their strategic allocation. It consists of nine top-level factors to communicate and report the key drivers of risk and return. It is designed for the board/top-level reporting.

Tier two helps investors allocate to systematic strategies. It is designed to integrate transition from board view to CIO/CRO to portfolio manager.

Tier three helps investors evaluate systematic strategies. It reviews the investment objectives set by managers across multi-asset class portfolios to build portfolios that have active tilts towards targeted investment objectives.

Tier four helps investors identify tactical positioning. It provides a deeper view of exposure of industries, countries, rates, real estate, etc. and gives the ability to drill down into granular drivers of risk while maintaining consistency in strategic asset allocation and reporting at the top level.

Tier five helps investors construct portfolios and analyze specific exposures. With over 3,500 factors, this tier provides the greatest depth into asset allocation across asset classes.

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