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A matter of style

The long and the short of style factor investing
04 nov 2016 / por BlackRock & BlackRock & BlackRock

We believe that the true power of style investing can be most fully realized through a holistic, long/short, multi-asset strategy that invests across multiple factors in multiple markets.


 

Our approach to style investing focuses on factors that make intuitive economic sense, demonstrate the ability to create value for investors, provide a potential source of diversification, and can be implemented efficiently. We target four investment styles that we believe can deliver long-term returns and diversification across multiple asset classes: value, carry, momentum and defensive.

In order to harness the power of style factors in investment portfolios, it is critical to emphasize economic intuition (and beware of data mining), to build exposures carefully in order to target only the desired risks, and to manage implementation effectively.

Employing a long/short approach across asset classes can create a powerful source of diversification. It is this low correlation with traditional asset classes—and with the core holdings of investors’ portfolios—that is perhaps the most compelling feature of style investing.

A diversifying addition

Hypothetical correlations among long/short multiasset style factors and major asset classes

Hypothetical correlations among multi-asset style factors and classes

Sources: BlackRock, Thomson Reuters. Correlations use monthly returns over the ten-year period ending July 2016. The performance shown is hypothetical, does not represent any existing portfolio, and as such, is not an investible product. There are frequently sharp differences between a hypothetical performance record and the actual record subsequently achieved. Developed Equities: MSCI World Total Return Index USD, Global Bonds: Barclays Global Aggregate USD Hedged Index, Commodities: Bloomberg Commodity Index TR USD, US Dollar Index: US Dollar Index DXY.

 

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Ked Hogan, PhD
Head of Investments for BlackRock’s Factor-Based Strategies Group
Ked Hogan, PhD
Head of Investments for BlackRock’s Factor-Based Strategies Group
Philip Hodges, PhD
Head of Research for BlackRock’s Factor-Based Strategies Group
Ted Daverman, CFA
Member of BlackRock’s Factor-Based Strategies Group
Philip Hodges, PhD
Head of Research for BlackRock’s Factor-Based Strategies Group
Ted Daverman, CFA
Member of BlackRock’s Factor-Based Strategies Group