MSCI launches equity factor models featuring sustainability, crowding and machine learning

INVESTMENT research firm MSCI on Thursday (Jun 16) launched a series of equity factor models that feature new sustainability, crowding and machine-learning factors.

Calling them “next-generation” models, MSCI said they include risk-forecasting tools that are designed to adapt to market volatility.

“Investors have told us repeatedly that the new risk measures in these models, combined with the introduction of sustainability factors, are crucial for an evolving investment landscape,” said Mark Carver, head of equity portfolio management and equity factors at MSCI.

These models were built on MSCI’s 5 decades of factor research and developed in consultation with some of the world’s largest investors, the company said.

The sustainability factor includes an environmental, social and governance (ESG) factor, and a carbon-efficiency factor that measures a company’s emissions relative to its size, MSCI said.

The crowding factor uses multiple measures to assess how a stock is priced relative to its own history, whereas the machine-learning component leverages data science and natural language processing to evaluate the relationships between different variables that affect a stock’s returns.

These models enable institutional investors to build portfolios across new and familiar factor dimensions, and to run comparisons against industry peers and benchmarks, MSCI said.

They also provide enhanced transparency into portfolio characteristics through improved handling of initial public offerings, improved coverage and dynamic industry exposure analysis.

The four new models are the:

SEE ALSO

ESG investing accelerates

• MSCI Global Equity Factor Model
• MSCI USA Equity Factor Model
• MSCI Global Equity Factor Trading Model
• MSCI USA Equity Factor Trading Model

The new equity factor models will also evaluate pre-merger special-purpose acquisition companies (SPAC), expanding the investment opportunity set for investors as well as improving the calculation of some existing factors, MSCI said.

They will be available through multiple distribution channels, including Snowflake’s Data Cloud, select third-party partners and from MSCI directly via the proprietary Barra Portfolio Manager and BarraOne platforms.