MSCI on Tuesday unveiled a new set of multifactor indexes to enable investors to get the long-term risk and return exposure of active management in a passive way, said Alain Dubois, managing director and head of index product development.
The indexes will use from one to six equity risk premium factors — value, low size, low volatility, high yield, quality and momentum — leaving the selection and number of factors to investor discretion, Mr. Dubois said in an interview. Quality reflects low debt, stable earnings growth and other quality metrics.
The MSCI Multi-Factor Indexes use as their basis standard market-cap-weighted indexes such as the MSCI EAFE, MSCI ACWI, MSCI World or MSCI Emerging Markets.
The multifactor indexes are grounded on academic research that has shown the factors have, in the long term, provided a premium to market returns, Mr. Dubois said.
“These factor indexes are a way for investors to gain exposure (through passive management) to some performance factors in the market that could (normally) be obtained through active management,” Mr. Dubois said.
The weighting of the components will be based on the factors, Mr. Dubois said.
“The weights will be different” from the standard market-cap indexes and in some cases weights will be zero, excluding some stocks from the multifactor indexes for not fitting the criteria, Mr. Dubois said.
MSCI views the multifactor indexes as complementary and not a replacement for standard market-cap indexes, Mr. Dubois said.