MSCI, a leading index provider, has just launched its first fixed income market indexes, all corporate bond indexes.
Fifteen bond indexes were introduced in all: an investment-grade index weighted by issuance, two ESG corporate bond indexes and 12 factor indexes, including the typical value, size and risk, used in equity indexes, but also the carry factor, which is unique to currency and bond markets.
“We are pleased to bring next generation fixed income indexes to market,” said Jana Haines, Head of Index Products, Americas, at MSCI, in a statement. “Investors are increasingly demanding ESG integration across all asset classes and looking to Factors — such as Carry, Quality, Value, Size and Risk — to more precisely define how they can better identify, measure and manage risk and return in their portfolios.”
In a new study accompanying the announcement, MSCI analysts noted that in the current low interest rate environment, exposure to bond indexes other than the prevailing conventional issuance-weighted indexes can help enhance “risk-adjusted fixed-income performance.”
They found that from September 2005 to June 2019, exposure to low risk and quality factors in the corporate bond market improved risk-adjusted returns and the size premium was most evident among smaller-sized bonds, which tend to be less liquid. Multi-factor combinations benefited from increased diversification due to weak correlations among various style factors. The researchers also found that “transaction costs had a significant impact on strategy performance.”
MSCI’s latest announcement follows its introduction in July 2019 of ESG ratings for 32,000 mutual funds and ETFs, including stock and bond funds. In November 2019, it made ESG ratings of more than 2,800 companies publicly available, and it announced plans to do the same for the 7,500 constituents of the MSCI ACWI (all country world index) Investment Markets Index sometime in 2020.
Below is the list of MSCI’s new bond indexes:
- MSCI USD Investment Grade Corporate Bond Index
- MSCI USD IG ESG Universal Corporate Bond Index
- MSCI USD IG ESG Leaders Corporate Bond Index
- MSCI USD IG Carry High Exposure Corporate Bond Index
- MSCI USD IG Low Risk High Exposure Corporate Bond Index
- MSCI USD IG Quality High Exposure Corporate Bond Index
- MSCI USD IG Value High Exposure Corporate Bond Index
- MSCI USD IG Size High Exposure Corporate Bond Index
- MSCI USD IG Multi-Factor High Exposure Corporate Bond Index
- MSCI USD IG Carry Corporate Bond Index
- MSCI USD IG Low Risk Corporate Bond Index
- MSCI USD IG Quality Corporate Bond Index
- MSCI USD IG Value Corporate Bond Index
- MSCI USD IG Size Corporate Bond Index
- MSCI USD IG Multi-Factor Corporate Bond Index