The ideas behind factors aren’t new. But their use is being enhanced by data and technology.
What are factors?
Factors are the foundation of portfolios—the broad, persistent forces that have driven returns of stocks, bonds and other assets. Factor investing leverages advancements in today’s data and technology to deliberately seek these historical return drivers in portfolios. Understanding how factors work can help you capture their potential for excess return and reduced risk, just as leading institutional investors and active fund managers have done for decades.
Types of factors
There are two main types of factors that have driven returns: macroeconomic factors, which capture broad risks across asset classes; and style factors, which help to explain returns and risk within asset classes.
Factors have generally had low correlations with each other and therefore tended to perform well at different parts of the economic cycle. Use our interactive tool to see how different factors have performed through market shocks, expansions and contractions over the long term.
Why invest in factors
Institutional investors and active managers have been using factors to manage portfolios for decades. Today, data and technology have democratized factor investing to give all investors access to these historically persistent drivers of return.
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Factor investing is the way of the future. It’s about empowering investors to deliberately and directly access ideas to help achieve their financial goals.
— Andrew Ang, Ph.D.
Head of Factor-Based Strategies
How to access factors
BlackRock offers a range of solutions designed to tap into the potential of factors – from low-cost, efficient smart beta ETFs to dynamically managed and enhanced factor strategies.
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