Alternative data specialist QuantCube Technology today announced that its real-time macro-economic data will be integrated into the new MSCI Economic Regime Allocator Index being launched by MSCI Inc., a leading provider of critical decision support tools and services for the global investment community.

The MSCI Economic Regime Allocator Index allocates assets into different exposures based on a pre-determined set of rules. The index works on the premise that financial markets generally go through different cycles or phases, and during these cycles, different types of assets or stocks tend to perform differently. The index allocates assets to different market subsets based on the current economic regime. As the economy moves from one regime to another the assets in the index are rotated and reallocated with the aim of maximizing investment performance.

“The challenging macro-economic environment means that investors are looking for ways to navigate market conditions significantly affected by inflation and changeable growth patterns. The MSCI Economic Regime Allocator Index brings in QuantCube’s nowcast data to track variables such as GDP and CPI, which helps create an investment solution that dynamically adapts to the current economic situation,” explained Stéphane Mattatia, Global Head of Thematic Indexes for MSCI.

The definition of the four different economic regimes – Stagflation, Heating up, Slow growth and Goldilocks – are based on the rate of change of GDP and CPI indicators and whether these are rising or falling. In a period of low growth where inflation is falling it can be more attractive to hold treasuries, while if economic growth and inflation are both rising it can be better to hold equities. A sectoral approach, based on rotating equity holdings by sector according to the economic regime is also essential in optimizing overall performance.

Based on historical market data from MSCI and QuantCube, recorded over a 10-year period from October 2012 to February 2023, the new index demonstrated annualized returns of 11.04% versus a benchmark return rate of 5.83%. The benchmark was based on allocating 60% of assets to the MSCI World index and 40% to USA treasuries. Additionally, looking at the most recent 1-year performance of the new index, it showed annualized returns of +0.8% versus a negative return of -8.59% for the benchmark.

“We’re thrilled to be collaborating with MSCI to bring the Economic Regime Allocator Index to market,” said Thanh-Long Huynh, CEO and Co- Founder, QuantCube Technology. “We share MSCI’s goal to bring greater transparency to financial markets and to support the investment community in understanding and analysing key drivers of risk and return so as to build more effective portfolios. We do this by feeding the index with our real-time GDP and CPI nowcast data which is computed on a daily basis and is available significantly ahead of the publication of official data. Though future returns can never be guaranteed, the simulations we’ve conducted with MSCI to demonstrate the projected annualized returns versus the benchmark shows the value to be gained by allocating assets based on the economic regime.”