MSCI adds to “factor tilt” indices as smart beta gathers pace

AnalyticsIndex compiler MSCI has added two indices to its "factor tilt" index family aimed at investors who require a high investment capacity.

Like the other indices in the family, the new products tilt the market capitalisation weights of securities based on a specific factor score.

For the new MSCI Size Tilt indices, this is the "low size" factor, which aims to capture outperformance of small companies. For the MSCI Dividend Tilt indices it is the "high yield" factor, which aims to capture the performance of big dividend-paying stocks.

"We've seen a dramatic growth in client demand over the last two years for factor indexes," said Dimitris Melas, managing director and global head of index new product research at MSCI. "By expanding our family of factor tilt indexes, we are able to offer factor indexes across a broader range of investment styles to institutional investors who are focused on higher investability."

What MSCI calls factor indexing is sometimes known as "smart beta", which means using passive investment to gain exposure to indices other than traditional market cap-weighted ones.

Smart beta is increasingly popular, though Altaf Kassam, managing director for index applied research at MSCI, recently told Funds Europe that capacity constraints may limit the growth of these strategies.

A recent study found that, by 2017, the percentage of assets invested into smart beta products is expected to reach 18%, double the allocation at the beginning of 2014.

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