MSCI Inc. (NYSE: MSCI), a leading provider of investment decision support tools worldwide, has launched the MSCI Quality Mix Indices, which combine the MSCI Quality, MSCI Value Weighted and MSCI Minimum Volatility Indices into one diversified risk premia index.
“We are delighted to bring to the market a set of new indices designed to reflect the beta represented by combining quality with value and low volatility strategies,” said Baer Pettit, Managing Director and Global Head of the MSCI Index Business. “The new MSCI Quality Mix Indices are another example of our ability to deliver innovative index tools to meet the increasingly sophisticated needs of our clients.”
Many active strategies emphasize quality, value and low volatility as important factors in their security selection and portfolio construction. Whilst these active strategies typically go beyond passive exposure to quality, value and low volatility securities to include active stock selection and the use of leverage, their beta component could be represented by the quality, value and low volatility risk premia. Recent empirical academic research has shown that stocks with high quality, value and low volatility characteristics have historically provided higher long-term risk-adjusted return (for example, see the analysis between 1976-2011 in a study by Frazzini, Kabiller and Pedersen, published in 2012, titled ‘Buffett’s Alpha’).
The MSCI Quality Mix Indices aim to represent the performance of quality, value and low volatility risk premia strategies across global markets in a single composite index. Between 1988 and 2013, based on simulated historical index data, the MSCI World Quality Mix Index delivered an annualized total return of 9.8% versus 7.3% for the MSCI World Index, with a total risk 1 of 13.2% versus 15.4% for the MSCI World Index, resulting in a better long-term risk-adjusted return for the MSCI World Quality Mix Index during this time period. The risk and return characteristics of the MSCI Quality Mix Indices, including the factor exposures, can be found on msci.com.The following MSCI Quality Mix Indices are now available:
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