Factor investing has become increasingly popular in recent years as a rules-based approach to generating excess returns. BlackRock is one of the largest asset managers utilizing factor investing strategies across a range of products. This article examines some key conclusions regarding BlackRock’s approach to factor investing as well as potential future trends.
BlackRock utilizes both single and multi-factor strategies across equities and fixed income
The documents analyzed highlight that BlackRock offers factor investing strategies across asset classes. This includes single-factor strategies targeting factors like value, momentum and low volatility as well as multi-factor combinations. BlackRock manages factor-based indexed funds and also actively manages factor strategies. Key factors utilized span equities and fixed income.
Factor investing expected to keep gaining assets
The documents note the large flows into index and factor investing approaches in recent years. Given the rules-based and lower cost nature of these strategies, they are likely to continue attracting assets. BlackRock, as one of the largest providers, stands to benefit as factor investing gains more adopters.
Factor returns show cyclicality over long horizons
While factors can underperform over periods of several years, research shows their returns tend to persist over long periods. This emphasizes the benefits of patience for factor investors. Periodic underperformance of certain factors also provides opportunities to rebalance into cheaper segments.
Data and technology improving factor modeling
Big data and artificial intelligence are enhancing factor research and modeling. As the documents describe, alternative datasets and machine learning can help create better statistical factor models. This can strengthen predictive power and portfolio construction techniques for factor investing.
In conclusion, BlackRock is expected to remain a leader in providing factor-based investing strategies across asset classes. Factor investing is likely to keep gaining investor assets given its structured, transparent rules-based approach. However, factor returns tend to be cyclical, rewarding patient long-term investors.