Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, has added new MSCI indexes to its portfolio and also announced that it intends to introduce factor allocation, in addition to its existing active and passive mandates.
MSCI, a provider of indexing and portfolio analytics systems, recently completed research for GPIF on the utility of factor-based indexes for large institutional portfolio managers, according to a company statement. GPIF commissioned the study in April.
The research concludes that passive factor strategies “can be implemented as a potential ‘third bucket’ alongside the traditional active and passive allocations,” says Chin Ping Chia, MSCI’s head of index applied research in Asia Pacific, in a statement.
“As factor-based investing becomes more common among institutional investors, there is a growing need to understand how it can be best integrated into the existing investment process,” says Chia in a prepared statement.
The research, which compared the results of passive factor strategies to those of traditional passive and active allocations, was based on analysis of the performance of several factor indexes created by MSCI for the project.
Those indexes “reweighted all the constituents of a market cap index based on six systematic factors – value, low size, low volatility, high yield, quality and momentum,” according to an MSCI statement.
The research also analyzed the historical performance of different combinations of various multi-factor indexes.
“The study commissioned by GPIF reveals that passive factor strategies, which are made possible through newly developed factor indexes, and active management are not mutually exclusive,” says Baer Pettit, managing director and global head of MSCI’s index business. “As a result, sophisticated institutional investors may increasingly make an independent allocation to passive factor investments, in parallel to their existing active and passive mandates.”
MSCI provides indexes and other investment tools to financial institutions, and also owns Barra, which pioneered equity factor investing in the 1970’s. MSCI specializes in factor indexes.
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