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Factor-Based Indexes Drive Growth For MSCI

November 17, 2016 2:10 pm
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Factor-Based Indexes Drive Growth For MSCI

Shares of Msci Inc (NYSE: MSCI), one of the largest providers of indexes for use by issuers of exchange-traded funds, are up about 2 percent in midday trading after the company revealed soaring growth for its factor-based benchmarks.

At the end of the third quarter, global factor-based ETFs had attracted $51 billion in new assets year-to-date with $17.5 billion, more than a third, of that total flowing to ETFs tracking MSCI indexes, according to the index provider. There is now more than $170 billion in assets benchmarked to MSCI's factor indexes on a global basis.

Not surprisingly, low or minimum volatility indexes have been key drivers of the factor-based benchmark growth for MSCI. For example, the iShares Trust (NYSE: USMV) has seen year-to-date inflows of over $4.93 billion, a total surpassed by just nine other ETFs.

Last month, the iShares low volatility suite, which includes USMV, celebrated its fifth anniversary with $35 billion in assets under management on a global basis. However, USMV is not the only ETF contributing to the growth of MSCI's minimum volatility benchmarks

Other ETFs Helping MSCI’s Minimum Volatility Benchmarks

The iShares Inc. (NYSE: EEMV) has raked in more than $1.33 billion in new assets this year, as investors have sought alternatives to traditional emerging markets ETFs. EEMV follows an MSCI index that is the developing markets equivalent of the U.S.-focused index tracked by USMV.

The iShares Edge MSCI Min Vol EAFE ETF (NYSE: EFAV), which follows the MSCI EAFE Minimum Volatility (USD) Index, has added $3.2 billion in new assets this year, a significant chunk of its $7.2 billion in assets under management.

In 2011, ETFs following MSCI indexes controlled just six percent of assets under management allocated to low or minimum volatility strategies, but that number has swelled to 68 percent as of the end of the third quarter, according to MSCI data.

While low volatility strategies have commanded ample attention this year, MSCI does offer indexes for other investment factors, including momentum, quality and value.

MSCI And Other Investment Factors

For example, momentum investors can consider the iShares Trust (NYSE: MTUM).

MTUM tracks the MSCI USA Momentum Index and there is little in the way of perceived momentum surprises in the ETF or its underlying benchmark. Investors should look elsewhere if they want an ETF heavy on telecommunications or utilities stocks. Likewise, because these sectors have displayed less-than-impressive momentum traits, MTUM offers only token industrials and materials exposure while holding no energy stocks.

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