MSCI’s 2021 Q3 Factor Review and Defensive Valuation Comparison

Summary

This article reviews global equity factor performance in the third quarter of 2021 and compares defensive factor positioning. It reports that momentum and low residual volatility led the pure factor results, while liquidity lagged. Regional index outcomes varied: minimum volatility performed well in global and emerging-market benchmarks, while momentum differed between developed and emerging markets. The report also describes factor exchange-traded product flows, noting strong late-period inflows to yield strategies and some recent growth in quality flows.

For defensive allocation, the analysis compares forward price-to-earnings and price-to-book valuation ratios for minimum-volatility and quality indexes in developed and emerging markets. It finds minimum volatility was valued below quality at levels described as unusually low relative to the prior two decades. An adaptive multi-factor model uses macroeconomic conditions, historical valuation gaps, recent relative performance, and market sentiment to set exposures; its late-September assessment favored momentum over yield. These are dated, model-based observations, not evidence that the allocations will persist or predict future returns. The report also relies on third-party flow data whose accuracy MSCI does not guarantee.

Key ideas

• Momentum and low residual volatility led the reported pure factor results in 2021 Q3.
• Regional factor performance differed, including between developed and emerging markets.
• Minimum volatility traded at lower relative valuations than quality in the markets discussed.
• The adaptive allocation model combines macro, valuation, recent performance, and sentiment inputs.
• The reported factor exposures and market observations are specific to the period studied.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.