The MSCI Quality Mix Indices, which the provider calls a “risk premia” index, could be licensed by exchange-traded fund providers, who are interested in bringing “smart beta” products to market.
These indices aim to gain higher returns than traditional cap-weighted indices by targeting particular risk characteristics.
MSCI says the new index set could be used as a beta component in active strategies that emphasise quality, value and low volatility as important factors in their security selection and portfolio construction.
Recent empirical academic research has shown that stocks with high quality, value and low volatility characteristics have historically provided higher long-term risk-adjusted returns, says MSCI, offering a study by Frazzini, Kabiller and Pedersen, published in 2012 and titled Buffett’s Alpha, as an example.
Between 1988 and 2013, based on simulated historical index data, the MSCI World Quality Mix Index delivered an annualised total return of 9.8% versus 7.3% for the MSCI World Index, with a total risk of 13.2% versus 15.4%.
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