INNOVATION MATTERS MSCI EQUITY ANALYTICS ROADMAP Q3 2015
MSCI EQUITY ROADMAP Q2 2015 CLIENTS MATTER TODAY WE ARE MORE FOCUSED THAN EVER ON OUR CLIENTS BUSINESS NEEDS. Peter Zangari Managing Director and Global Head of MSCI s Analytics Business
OUR STORY We are an independent provider of research-driven insights and tools for institutional investors. We have deep expertise in the areas of risk and performance measurement that is based on more than 40 years of academic research, real-world experience and collaboration with our clients. Our broad product line supports clients needs across all major asset classes and provides them with a consistent way of looking at risk and performance from front to middle office. We have a highly flexible business model that enables clients to select the individual products and services they need and integrate them into their own investment processes and methodologies. Asset owners use our research, data, benchmarks and multi-asset class risk management tools to determine whether the managers they hire are delivering appropriate risk-adjusted returns. Chief investment officers use our extensive, high-quality data to develop and test investment strategies. They also use our models and performance attribution tools to understand the drivers of return in their portfolios. Active managers rely on our factor models, data and portfolio construction and optimization tools to build portfolios and keep them aligned with their investment objectives. Passive managers use our index data, equity factor models and optimizer to construct their index funds and ETFs. Chief risk officers choose our risk management systems to understand, monitor and control risk in the portfolios they are safeguarding. INDEXES MSCI has been at the forefront of index construction and maintenance for more than 40 years, launching its first global equity indexes in 1969. Today, MSCI offers a family of more than 160,000 consistent and comparable indexes which are used by investors around the world to develop and benchmark their global equity portfolios. PORTFOLIO CONSTRUCTION MSCI is a leader in providing tools to help asset managers build and manage better portfolios. Asset owners use our research, data, benchmarks and multi-asset class risk management tools to determine whether the managers they hire are delivering appropriate risk-adjusted returns. Asset managers use our models and performance attribution tools to understand the drivers of return in their portfolios. RISK AND PERFORMANCE MSCI s powerful multi-asset class risk and performance platform supports our clients from asset allocation through implementation and reporting. It gives front and middle offices a common language to use in identifying and communicating about the sources of market, credit, liquidity and counterparty risk. Ex post performance measurement provides a basis for understanding whether the sources of risk are aligned with the drivers of return. Throughout the process, clients can benefit from a single data load and reconciliation process for both risk and performance attribution analysis. 3
BARRA PORTFOLIOMANAGER Barra PortfolioManager is a cloud-based, interactive platform with a flexible user interface for the professional equity investor community. It helps our clients design, develop and manager their investment strategies and share them across their organizations. AVAILABLE NOW PEER ANALYTICS Designed to provide institutional-grade, holdings-based insight into investment strategies and performance of mutual funds for investment managers and asset owners. Leverage holdings-level data for active equity mutual funds to use as a source of comparison against your own portfolio Gain insights into investment styles and sources of risk and return in various market segments via PDF reports RISK DELTA Clients can now see changes in risk using the correlated risk contribution framework. The user may select two portfolios, two dates, or two horizons of the same risk model side by side. The goal is to understand what drove the difference in risk between two dates or portfolios: differences in the PM s bets, changes in risk measures, or changes in risk model correlations. Barra Open Optimizer 8.1 Integration Leverage the latest research and analytics from our Barra Open Optimizer research team, including a new second order cone problem (SOCP) algorithm and new constraint options Barra PortfolioManager is a cloud-based, interactive platform with a flexible user interface for the Professional equity investor community. It helps our clients design, develop and manager their investment strategies and share them across their organizations. COMING SOON Additional MSCI Index and security level data to more easily replicate the indexes. Data includes Price Adjustment Factor, Foreign Inclusion Factor, full market capitalization and free float market capitalization to name a few. Enhancements to data management procedures around foreign listings. This helps eliminate the complexity of a single security master supporting multiple risk models. Optimizer 8.2 support for multiple period optimization and ITG Cost Curves for non-linear transaction cost estimation Further enhancements to Peer Analytics adding new fund attributes for improved searching, screening and comparison of peer mutual funds 4
BARRA AEGIS SUITE Barra Aegis is an integrated suite of equity investment analytics and portfolio management tools designed to help users actively manage equity risk against expected returns. AVAILABLE NOW The latest version Barra Aegis 4.6 includes: BarraOptimizer 8.1 features including asset-level nonlinear transaction costs and limits on buy side and sell side turnover Enhancements for tax-aware optimization users, which include soft factor constraint support with after-tax optimization, tax-aware back-testing and new tax reports Support for restricted trading lists in optimization Use of portfolio level attributes in formula Support for a single common repository of MSCI-delivered portfolios across all models for more efficient model data management New MSCI branding COMING SOON Optimizer 8.2 and related features Market timing in Asset Contribution reports Tax related features OPTIMIZER POWERED BY BARRA MULTI FACTOR MODELS, THE AEGIS SUITE HELPS PORTFOLIO MANAGERS DECOMPOSE RISK AND ACTIVELY MANAGE PERFORMANCE. 5
BARRA OPEN OPTIMIZER 8.2 An optimization software library designed to fit seamlessly into portfolio management workflows and support improved investment decision making processes. It utilizes multiple optimization engines from MSCI and 3rd parties to create index tracking portfolios, manage asset allocation, implement tax aware strategies and other objectives of portfolio managers. AVAILABLE NOW MULTIPLE-PERIOD OPTIMIZATION Multiple-Period Optimization allows portfolio managers to take into consideration the alpha and transaction cost information not only for the current period, but also for future periods. It also enables traders to optimally schedule their trading in order to minimize transaction cost and risk over discrete periods in the trading day. DIVERSIFICATION CONTROLS Set a lower bound on Diversification Ratio as an alternative rules-based portfolio construction technique to form risk-managed portfolios. Use the new Portfolio Concentration Limit constraint to control total weight of the top 5 largest positions in a portfolio. This new version of the Barra Open Optimizer also includes: Soft lower bound on total risk or tracking error Frontier optimization with cardinality, threshold, and soft constraints. This release also contains the following previously released features: Native support for the Python programming language with documentation and examples. Three available asset penalty functions. Added support for fixed holding costs in the objective function. A complete set of MATLAB tutorials reflecting a variety of use cases, packaged into a MATLAB toolbox with the complete Open Optimizer documentation. The new second order cone solver now supports threshold and cardinality constrained problems with convex risk constraints for faster optimizations and better results. COMING SOON Further enhanced functionality for multiple-period optimization and portfolio diversification controls. Stronger optimization algorithms when using thresholds or cardinality constraints. Additional methodologies for rules based portfolio construction based on maximum diversification or effective number of names 6
BARRA EQUITY MODELS Helps risk and portfolio managers identify fundamental sources of risk and return, resulting in greater transparency into investment processes and decisions. Barra Equity Models are built by more than 400 experienced industry experts working cross functional teams comprising researchers, mathematicians, statisticians and financial engineers. AVAILABLE NOW THE BARRA US TOTAL MARKET EQUITY MODELS: Multiple models with factor structure and responsiveness aligned with different investment horizons and strategies. The Long-Term model incorporates the most stable set of style factors reflecting long-term strategies that aim to keep portfolio turnover and transaction costs at low levels while the Medium-Term and Trading versions of the models add additional style factors to improve model performance across shorter investment horizons. Enhanced style factors based on Systematic Equity Strategies. Introduces new factors based on Management Quality, Prospect and Profitability. Features premier data from MSCI s comprehensive database and additional leading quantitative data sources. THE BARRA ASIA-PACIFIC EQUITY MODEL: New factors for the Asia-Pacific market based on Systematic Equity Strategies. A new dual factor structure to capture the unique dynamics of Asia ex-japan and Japan. A series of Asian single-country models leveraging the regional model s innovations and factor set. The Barra China International Equity Model and the latest Barra Taiwan Equity Model are available now. COMING SOON Barra Global Total Market Equity Models Barra UK Total Market Equity Models Barra Integrated Model (BIM 303) in Models Direct. The model is available now in Barra Portfolio Manager and BarraOne. SOME CLIENTS ASK ABOUT OUR EQUITY MODELS AND THEY ARE VERY HAPPY TO HEAR THAT WE USE THE INDUSTRY LEADER, WHICH IS BARRA. Rudolf Gattringer Kepler Fonds KAG 7
MODEL METHODOLOGY Our model roadmap delivers MSCI s new approach to risk modeling: Systematic Equity Strategies (SES) improve risk forecast accuracy and capture evolving sources of risk and return. SES factors are included in addition to the standard Barra style factors, market factor, and industry-specific factors. Together the models illuminate previously uncaptured sources of risk and return. The SES factors allow users to measure portfolio sensitivities to potentially crowded trades and positions, and uncover seasonality effects. During times of market stress, this crowding may result in extreme levels of risk and SES factors can significantly improve the performance of the model. Identify persistent market anomalies and track the seasonality or market-timing opportunities around systematic equity strategies. Create more meaningful and intuitive portfolios. MSCI now also delivers Barra Descriptors, which are the building blocks of the factors in the leading Barra equity models. BARRA EQUITY MODELS: Capture previously hidden sources of risk and return that managers bet on, which result in greater transparency into investment processes and decisions. Improve the accuracy and explanatory power of a risk model, especially during periods of economic crisis. Provide a wider view into the sentiment around a stock, by matching the stock against widely followed attributes. Provide an unprecedented level of transparency through Barra Descriptors, the building block of the model s styles. This enriched dataset is now available to use across your investment process. RELATED RESEARCH Research Insight Employing Systematic Equity Strategies: Distinguishing Important Sources of Risk from Common Sources of Return Research Insight Systematic Equity Strategies: A Test Case Using Empirical Results from the Japan Equity Market Research Insight Benefits of Including Systematic Equity Strategy (SES) Factors Research Insight Introducing the Prospect Factor Research Insight Introducing the Seasonality Factor BARRA U.S. TOTAL MARKET EQUITY TRADING MODEL AVAILABLE NOW 8
BARRA EQUITY SECURITYMASTER High quality data is the foundation for building quality models. Barra Equity SecurityMaster provides transparency into the data that supports and builds our models, enabling you to focus on your core investment capabilities. BENEFITS: Quality-assurance techniques including data normalization and multi-vendor validation as well as diagnostics resulting from collaboration between our data management and analytics research teams. Multiple external consumers (i.e., other clients) reviewing our data on a daily basis. Think of it as the most continually peer-reviewed dataset available on the market. Data Receipts (forthcoming) that provide transparency into our quality-assurance process by revealing what we checked, what we corrected, what we validated and why. To our knowledge, no other content provider reveals both corrections and related justification to their customers. Packaging made to facilitate efficient integration into a client s operating platform. AVAILABLE NOW Identifier Mapping History of Barra Identifiers mapped to the following identifiers: CUSIPs, CINS, ISINs, SEDOLs, gvkeys, MSCI Codes, MSCI Timeseries Codes, and local identifiers such as tickers. Asset and Issuer Characteristics Country of Quotation/Exposure/ Classification/Incorporation/ Domicile, Exchange information, Share Type and Class, Issuer, Primary Listing Daily Equity Market Data Prices (open/high/low/close/bbd/ ask), number of shares, volume Derived data: market capitalization, returns and liquidity data Corporate Events Dividends including ex-date and return re-investment date MSCI Price Adjustment Factors, which aggregate the impact of corporate actions on an asset s price Other Data FX and risk-free rates Exchange holidays The Barra Equity SecurityMaster is the dataset used to create Barra Equity Models. It provides full transparency of all the data that supports and builds the model and is delivered in a format that can be seamlessly integrated into your investment platforms. COMING SOON Data Receipts: log of all the exceptions we review, correct, and validate including reasons for our decisions. Version 1 will cover security reference data; Version 2 will cover market data. Corporate Actions Master enhanced coverage and detail (e.g., not just PAFs and dividends, but buybacks, M&A, etc. as well). Expected start: Q4; expected launch: Q1 2016. MSCI IS THE ONLY PROVIDER WHO PROVIDES DATA RECEIPTS AND UNDERLYING DATA FOR ALL ITS MODELS 9
MODELS MATTER MSCI offers a variety of models that cover a broad range of developed, emerging Depositary Receipts, cross-listed securities, ETFs and equity index features. MSCI Equi BARRA GLOBAL MODEL Global Equity Model BARRA REGIONAL MODELS Europe Equity Model Europe Stochastic Equity Model Asia P Equity M BARRA SINGLE COUNTRY EQUITY MODELS AMERICAS US Total Market Equity Model Suite US Sector Equity Models US Small Cap Equity Model US Equity Models Canada Equity Model Brazil Equity Model EUROPE, MIDDLE EAST & AFRICA South Africa Equity Model United Kingdom Equity Model 10
and frontier markets and over 88 countries around the world. This includes ty Models acific odel Emerging Markets Equity Model North America Stochastic Factor Model ASIA PACIFIC Australia Equity Model China Equity Model China International Equity Model Korea Equity Model Taiwan Equity Model Hong Kong Equity Model India Equity Model Thailand Equity Model Indonesia Equity Model Malaysia Equity Model Singapore Equity Model New Zealand Equity Model 11
WE USE BARRA PRODUCTS FOR OVERALL TOLERANCE FOR ACTIVE WEIGHTS, SECTOR MINIMUM AND MAXIMUM WEIGHTS RELATIVE TO OUR BENCHMARK AS WELL AS OTHER RISKS THAT ARE EMBEDDED IN THE PORTFOLIO. WE ALSO USE BARRA AEGIS TO HELP US SIZE THE POSITIONS IN THE PORTFOLIO AND CONTROL THE PRIMARY RISKS OF THE PORTFOLIO. MSCI S BARRA PRODUCTS HELP US IMPLEMENT OUR IDEAS IN AN EFFICIENT MANNER. James Abate Founder, Managing Director and Fund Manager, Centre Asset Management
CONTACT US AMERICAS Americas Atlanta Boston Chicago Monterrey New York San Francisco São Paulo Toronto 1 888 588 4567 (toll free) + 1 404 551 3212 + 1 617 532 0920 + 1 312 675 0545 + 52 81 1253 4020 + 1 212 804 3901 + 1 415 836 8800 + 55 11 3706 1360 + 1 416 628 1007 EUROPE, MIDDLE EAST & AFRICA Cape Town + 27 21 673 0100 Frankfurt + 49 69 133 859 00 Geneva + 41 22 817 9777 London + 44 20 7618 2222 Milan + 39 02 5849 0415 Paris 0800 91 59 17 (toll free) ASIA PACIFIC China North China South Hong Kong Mumbai Seoul Singapore Sydney Taipei Thailand Tokyo 10800 852 1032 (toll free) 10800 152 1032 (toll free) + 852 2844 9333 +91 22 6784 9160 00798 8521 3392 (toll free) 800 852 3749 (toll free) + 61 2 9033 9333 008 0112 7513 (toll free) 0018 0015 6207 7181 (toll free) + 81 3 5290 1555 TO FIND OUT MORE, PLEASE VISIT MSCI Indexes msci.com/indexes Portfolio Construction msci.com/portfolio-management Risk and Peformance msci.com/risk-performance msci.com clientservice@msci.com The information contained herein (the Information ) may not be reproduced or redisseminated in whole or in part without prior written permission from MSCI. The Information may not be used to verify or correct other data, to create indexes, risk models, or analytics, or in connection with issuing, offering, sponsoring, managing or marketing any securities, portfolios, financial products or other investment vehicles. Historical data and analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. None of the Information or MSCI index or other product or service constitutes an offer to buy or sell, or a promotion or recommendation of, any security, financial instrument or product or trading strategy. Further, none of the Information or any MSCI index is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The Information is provided as is and the user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF MSCI INC. OR ANY OF ITS SUBSIDIARIES OR ITS OR THEIR DIRECT OR INDIRECT SUPPLIERS OR ANY THIRD PARTY INVOLVED IN THE MAKING OR COMPILING OF THE INFORMATION (EACH, AN MSCI PARTY ) MAKES ANY WARRANTIES OR REPRESENTATIONS AND, TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH MSCI PARTY HEREBY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. WITHOUT LIMITING ANY OF THE FOREGOING AND TO THE MAXIMUM EXTENT PERMITTED BY LAW, IN NO EVENT SHALL ANY OF THE MSCI PARTIES HAVE ANY LIABILITY REGARDING ANY OF THE INFORMATION FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL (INCLUDING LOST PROFITS) OR ANY OTHER DAMAGES EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited. 2015 MSCI Inc. All rights reserved CBR0615
94% OF PORTFOLIO MANAGER AND INSTITUTIONAL INVESTORS AGREE THAT DATA QUALITY IS ESSENTIAL IN THE EQUITY MODELS THEY CHOOSE TO USE. 1 * MSCI Survey: Shifting realities: Myths & Models, September 2011 2015 MSCI Inc. All rights reserved.