Pursue investment outcomes with factors

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.

What is factor investing?

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 cycle1.

Hover over each factor to learn more.

Factor Investing: Outer image
Factor Investing: Inner image

VALUE

Stocks discounted relative to their fundamentals

ECONOMIC GROWTH

Exposure to the business cycle

MINIMUM VOLATILITY

Stable, lower-risk stocks

MOMENTUM

Stocks with upward price trends

QUALITY

Financially healthy companies

SIZE

Smaller, high-growth companies

CARRY

Income incentive to hold riskier securities

REAL RATES

The risk of interest rate movements

INFLATION

Exposure to changes in prices

CREDIT

Default risk from lending to companies

EMERGING MARKETS

Political and sovereign risks

LIQUIDITY

Holding illiquid assets

Value
Momentum
Minimum Volatility
Quality
Size
Carry
Economic Growth
Real Rates
Inflation
Credit
Emerging Markets
Liquidity
STYLE
Value
VALUE
Stocks discounted relative to their fundamentals
Momentum
MOMENTUM
Stocks with upward price trends
Quality
QUALITY
Financially healthy companies
Minimum Volatility
MINIMUM VOLATILITY
Stable, lower-risk stocks
Size
SIZE
Smaller, high-growth companies
Carry
CARRY
Income incentive to hold riskier securities
MACROECONOMIC
Economic Growth
ECONOMIC GROWTH
Exposure to the business cycle
Real Rates
REAL RATES
The risk of interest rate movements
Inflation
INFLATION
Exposure to changes in prices
Credit
CREDIT
Default risk from lending to companies
Emerging Markets
EMERGING MARKETS
Political and sovereign risks
Liquidity
LIQUIDITY
Holding illiquid assets

1. Source: MSCI. Focus: Momentum – Factor Investing

 


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.

“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, smart beta ETFs, to actively managed factor strategies.

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Smart beta ETFs provide investors with low-cost, efficient access to factor strategies

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Investors can access advanced strategies that incorporate BlackRock’s active insights, invest across asset classes and employ leverage and shorting. Investors may use these strategies to seek absolute returns or to complement hedge funds and traditional active strategies.

Learn about the BSF Style Advantage Fund >

More about factor investing

What’s the difference between factor investing and smart beta?

Smart beta is one subset of factor investing. Factor investing harnesses the power of broad and persistent drivers of return. Factor investing can refer to macro factors (which affect returns across asset classes) as well as style factors (which affect returns within asset classes) and can be implemented with or without leverage. Smart beta strategies generally refer to style factors within a single asset class, implemented without leverage, most commonly in an ETF.

What are the risks associated with
factor investing?

When it comes to factor-based strategies, investors have a lot of options. Each strategy is constructed in a unique way and may have different risks. It’s important that investors understand what risks are applicable to each strategy and how those may fit within their overall portfolio. Investors who choose long-short factor strategies will add risks associated with leverage.

What are some of the myths associated with factor-based investing?

One of the most pervasive myths around factor investing is that it must be used instead of indexed or active investments. Factor-based strategies, including smart beta ETFs, can be used both to replace and to complement traditional index or active investments in the portfolio.

Important consideration

As with any investment, there's no guarantee of performance. Individual factors have tended to perform well at different parts of the economic cycle, and may be less correlated with equity market moves. Be aware of this aspect of factor investing as you investigate whether any particular strategy makes sense with your investment goals. A multi-factor investment is diversified across factors and may help to reduce the effect of this cyclicality.

Why choose BlackRock for factor investing?

BlackRock has been at the forefront of factor-based investing for decades and continues to innovate new strategies to help address clients’ investment challenges. BlackRock offers a variety of ways to implement the time-tested principles of factor investing. These range from smart beta ETFs and target date funds, which offer low-cost, efficient access to factor strategies, to multi-asset, multi-factor strategies, that incorporate BlackRock's active insights, invest across asset classes and employ leverage and shorting.

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