Systematic investing
Investment Styles

Systematic investing

BlackRock's Systematic investment capabilities span equity, fixed income and alternative asset classes to help provide solutions designed to target specific risk, reward and diversification characteristics.

Portfolios powered by technology

Systematic investing combines alternative data, data science and deep human expertise to help modernize the way we invest and construct portfolios. By leveraging data-driven insights, scientific testing of investment ideas, and advanced computer modeling techniques, we constantly innovate new approaches as we seek to improve investment outcomes on behalf of our clients.

Systematically mapping geopolitical risk

We rely on a mosaic of data to help find answers to questions around risks that markets may not be fully pricing. Today, higher frequency shipping data helps us closely monitor an evolving crisis unfolding in the Red Sea. This is both a catalyst for continued inflation uncertainty and has potentially wide-ranging asset-specific return implications.
Systematically mapping geopolitical risk chart

Next generation portfolio construction

AI-enabled decision-making and alpha research is paired with market expertise to maximize the economic soundness of investment ideas.

Next generation portfolio construction
Data-driven insights

Detailed quantitative attribution helps constantly refine portfolios and targets distinct sources of return to help deliver specific investment outcomes.

Scientific testing

Quantitative data-analysis techniques yield scaled insights across large sets of securities, enabling high-breadth portfolios.

Disciplined construction

Scientific testing helps validate return potential, while simultaneously mitigating behavioral basis and cognitive errors.

Continuous refinement

Portfolio positions sized by disciplined risk budgeting and optimization processes seeks to balance a complex set of trade-offs in portfolio construction.

Data-driven insights

Detailed quantitative attribution helps constantly refine portfolios and targets distinct sources of return to help deliver specific investment outcomes.

Scientific testing

Quantitative data-analysis techniques yield scaled insights across large sets of securities, enabling high-breadth portfolios.

Disciplined construction

Scientific testing helps validate return potential, while simultaneously mitigating behavioral basis and cognitive errors.

Continuous refinement

Portfolio positions sized by disciplined risk budgeting and optimization processes seeks to balance a complex set of trade-offs in portfolio construction.

Investment strategies

Our systematic approach to investing can be applied across a spectrum of strategies. We manage both highly diversified and specialized investment capabilities to provide clients with solutions that best compliment their portfolios.

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Equities

Our systematic equity strategies are designed to deliver consistent and differentiated alpha to our clients. Our passion is combining insight and technology to generate compelling benchmark relative or absolute investment returns.
Long-only
Our data-driven insights and technology offer cost-efficient, risk-managed equity solutions to help clients generate returns across an extensive opportunity set.
Partial long/short
Designed to deliver differentiated alpha by selecting stocks through optimized tilts, we seek to exploit market inefficiencies and minimize exposure to uncompensated risks.
Absolute return
Absolute return strategies use distinct sources of return to seek positive absolute returns in equity markets, irrespective of financial conditions.

Fixed income

Systematic fixed income strategies employ differentiated data-driven insights backed by disciplined risk management that seek to deliver differentiated portfolio outcomes to investors.
Enhanced
Enhanced building blocks seek to deliver consistent, high information ratio alpha by combining security selection insights with optimized portfolio construction.
Liquid alternatives
Our investment decisions use multiple, independent and risk management alpha models, seeking enhanced risk-adjusted returns with low correlations to broad asset classes.
Hedge funds
Seek to uncover alpha using relative value, directional and security selection strategies, across markets, with return profiles independent of traditional market betas.

Alternatives

Our liquid alternative strategies seek to generate idiosyncratic alpha, with low correlations to broad asset classes. Our alternative solutions are available across a full spectrum of broad and specialized investment capabilities including multi-strategies, global equity market neutral, and global macro.
Risk parity
Multi-asset strategies built by diversifying across sources of risk rather than by asset class.
Absolute return
Strategies that seek to deliver uncorrelated alpha through long/short investing.
Multi-alternatives
Strategies that employ our differentiated investment ideas using multiple, independent and risk-managed quantitative models, seeking uncorrelated returns across asset classes.

Factors

Factors are broad and persistent drivers of returns both in and across asset classes. BlackRock has been at the forefront of factor-based investing for decades and continues to innovate new strategies to help address clients’ investment challenges.
U.S. Equity Factor Rotation
Dynamically allocates to U.S. stocks based on their exposures to historically rewarded factors, using proprietary insights and a forecast of near-term alpha potential.
Market Advantage
Macro factor strategy seeking returns with resilience. Portfolio allocations based on risk, not capital, that aim to capture the economic drivers of return.
Style Advantage
Long/short style factor strategy seeking liquid and diversified absolute returns.

How does BlackRock’s Systematic team seek an edge in markets?

We believe that an investment process underpinned by continual innovation is vital to our goal of delivering sustainable alpha to our clients.
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Decoding the Markets Webcasts

Join us for our quarterly Decoding the Markets Webcast where Blackrock Systematic experts apply a data-driven lens to help navigate the current market landscape.

Decoding the Markets: Cutting through consensus

JEFF ROSENBERG: Hi, everyone. Welcome to this quarter's Decoding The Markets Webcast. I'm Jeff Rosenberg, senior portfolio manager in BlackRock Systematic. I am joined by Raphael Savi, global head of BlackRock Systematic, Jeff Shen, co-head of Systematic Equity, and Andrew Ang, head of Systematic Factors, Sustainability, and Solutions.

For this quarter's Decoding The Markets, we're going to cover two topics. First topic on looking at the global policy, backdrop, market environment, outlook for equity and fixed income investing. Jeff and Raff will join me on that. And then we'll turn to our second topic, special topic guest here with Andrew Ang looking at the outlook for the same issues from a factors lens.

So let's turn to the conversation. And Raff, I want to turn to you. If we think about where we were not that long ago, a year ago, we would have been talking about something completely different. The consensus outlook was for expectations of significant recession -- recession outlook.

You and Systematic platform had a very different perspective. Fast forwarding to today, the outlook for the consensus has shifted downward towards expecting soft landing and a decreased expectation for recession.

So take us through these charts and the outlook and for how things look with respect to this biggest of questions around recessions.

RAFFAELE SAVI: Thank you, Jeff. Yes, last year was highly unusual. I think it was highly unusual on many dimensions. But the principal one is the one that you alluded to, right? The markets have been way ahead of consensus, in terms of a more sanguine outlook for risk assets and for the economy in general.

We can get a little bit into the details of why that happened, but I want to reiterate this concept that, oftentimes, markets are a little bit ahead of consensus, but it's unusual for them to be ahead for so long, right? So consensus has been really, I think, stuck in this idea of something is going to break.

The hiking cycle that we've seen has been too steep and too fast and there is no way that global economies can survive 450-500 basis points of rate hikes in 11 months. And I think what we've seen last year has been hard to explain, based on sort of historical patterns.

But the guide for us in Systematic has been data, as is always the case. And I like to make it a little bit contentious and say that last year, 2023, was a year in which data beat theory. Economic theory couldn't quite figure out how this immaculate deflation or soft-landing Goldilocks could happen. And that's where the consensus was.

But the data has been pretty consistently pointing at the same at the same direction. And I'd say, by and large-- and you and I will talk about it a little bit using a few charts-- by and large, that's the story also in markets today. There are concerns, of course. There's still a lot of questions that have not fully been answered, in terms of what shape this cycle will have.

But I would say that both on the growth side and on the inflation side, data keeps being positive. There are a couple of nuances that we'll need to debate, but I would say what you see reflected on the left-hand side in this chart sort of that because of these elements, recession probabilities have sort of kept coming down in our models. And they are at the lowest they've been in a long time.

Maybe I can cue you up on this one. As I said, last year was a little bit more unidirectional. There are a couple of nuances we want to discuss. And maybe you can take it on that front.

JEFF ROSENBERG: Yeah, the right-hand side here is something we've been spending a lot of time looking at. And that's one of the risks to this soft-landing outlook, which is both on the growth side, but also on the inflation side. Inflation has been benefited by the disinflation that we've seen in goods prices.

And so this issue around the Red Sea is one of many risk factors we'll get into. Some of our interesting data highlights that may undermine some of that good news story, in terms of inflation. But I want to turn back to you, Raff, and turn to the next slide, which is really where we're going to talk about some of the data that we're looking at that is looking at the inflationary side. So why don't you take us through some of the interesting highlights on the inflation front?

RAFFAELE SAVI: Yeah, I would say the two aspects that we've been focusing on, if you just break it down from the top, you know, goods, services, you know, shelter of course. And then a little bit where is the market relative to this? So again, what I highlighted earlier is this idea that sometimes you have data points that sort of align in one direction and it's not quite clear how that happens.

And we are more sort of in trying to answer the what than the how at this stage. So the what here, top right chart, scraping millions of prices out of web platforms on a daily basis across the globe. Again, we see a softening in web pricing pretty much across the board.

Actually, I would say that if you look at the US in the last couple of months, they seem to be coming down faster than we've seen in any point in our sample. So that might indicate that actually that deflationary pressures might be behind the corner, which is obviously something that is still a little bit out of consensus.

We didn't-- not to overburden this slide, we didn't put in wages, big component of services or shelter. Again, using high frequency, high granularity data like rent prices or house sale prices on platforms like Zillow in the US and job posting data for sort of entry level wage in different types of jobs, we see a similar dynamics.

The disinflationary pressures, by and large, are dissipating faster than expected in the economy. Now, the bottom left chart here shows that, by and large, when it comes to monetary policy, that had become a little bit consensus, right? So while last year, the concern in many sort of commentators and strategists was that this was going to be hard to get a handle on, this being the inflationary pressures.

Now it seems to us that sort of consensus on that particular cohort is that yes, the Fed is done and that cuts are coming, right?

JEFF ROSENBERG: Let me pick up that theme on inflation dissipating and take it from the fixed income perspective. Let's look at the next slide here for a second. You know, initially, there was some at least kind of dissonance between an equity market that was very buoyant and a fixed income market that was pricing a lot of cuts.

And so one of the things I tried to do in this chart is distinguish with the taxonomy exactly what's going on in the bond market between different types of cuts that the market is reflecting. And so that last category there is clearly not what we're looking at when we're looking at a bond market that's pricing for cuts and an equity market that's pricing for growth.

There's no disconnect. This is all about the disinflation, Raff, that you just mentioned. And really what the bond market is focused on is the two top categories. The category of what I call maintenance cuts and the second category which is calibration cuts. So maintenance cuts basically says, keep the real interest rate policy constant because as inflation falls, if you don't cut the nominal rate, you'll be effectively increasing real interest rates.

Most of what the bond market is expecting this year is reflecting this anticipated decline in inflation and therefore, a necessary decline in nominal rates to keep the real policy rate unchanged. I think the swing factor between where we started the year, six to seven cuts expected in fixed income, to where we are today, more like three to four and pushing back the timing of it is the shifting between maintenance cuts on falling inflation, where the Fed has said, What's the rush? The data has said, What's the rush?

And so the bond market's pricing back the rush. And so you're pushing back from March to June. But also pressing back because of the growth side that you need the calibration cuts. You only need the calibration cuts if growth slows to the degree that it starts to signal to policymakers, yes, indeed, this policy is too restrictive. Actually, too much growth tells you the opposite, that policy is not restrictive enough. And so that's where you're seeing a lot of bond market volatility around the pricing of inflation.

I want to pivot here, bring Jeff Shen back into the conversation and talk about the inflation and the inflation thematic opportunities that we're seeing on the equity side. So, Jeff, over to you.

JEFF SHEN: Thanks, Jeff. I'll say that on the inflationary side, and I mean, what Raffaele really talked about is certainly quite important in terms of pointing towards the scenario of soft landing. And how we are thinking about this is actually clearly, we're going to look at a lot of data. So one chart that we look at on the left-hand side is actually -- it's a bit of a visual of looking at the Dow Jones news.

Essentially, look at how often high inflation, higher inflation is actually mentioned in relation to the lower inflation that's being mentioned. And then found the document that's being mentioned. And you can see that from the early part of 2020, that trend certainly start to increase. And especially given some of the supply chain issues alongside with some of the inflationary pressure that we've actually seen around the globe.

And the inflation mentioned really peaked around the end of 2022 and beginning of 2023. And that's when actually you see that inflation mentioned start to decline in a pretty significant fashion. So when we look at that rotation, clearly, inflation is becoming less of a concern and there's much greater of a disinflation that Jeff and Raffaele were just mentioning.

Now, the key question that we want to ask is, What does that mean for asset pricing? Has the market been pricing in this kind of disinflationary type of type of rotation. One interesting thing we look at is actually to look at the cross-sectional market returns in the equity market. And here we look at two examples.

So the top right chart, essentially to look at when we look at COVID-related rotation, you can think about reopening in relation to shutdown and how the cross sectional equity market is actually pricing in between the two. And it's actually reasonably evident that when we look at from a COVID reopening perspective, pretty much everything is back to normal.

So when we look at the equity market cross-sectional behavior in relation to what we've actually seen before COVID, the correlation is actually becoming one, meaning that the cross-sectional move, any of the pricing of the COVID risk is essentially gone. And that certainly wasn't really the case if you go back to the early part of 2020 before the vaccine, the correlation is much closer to zero, meaning that the market is not really pricing any of the reopening.

Now, if you take the same technique and apply this for inflation, the interesting thing that we see is actually there's actually-- even though there is less of a talk around inflation, but from a cross-sectional movement perspective-- to what Jeff was talking about earlier-- there's actually still not enough rotation that's actually happening. So I think the market is certainly adjusting to a different type of inflationary environment.

But when we look at the equity market cross-sectional behavior, there's still a lot of more room for the equity market in the cross-sectional sense to price in this lower inflationary risk, going forward. So I think soft landing, while maybe becoming a bit of a talk of the town, but from the equity market opportunity perspective, there's still plenty of opportunities ahead.

JEFF ROSENBERG: Those a really good points, Jeff, and reminder of what we love about the equity market cross-sectional opportunities relative to fixed income, where the inflationary consensus in directional terms is so quickly priced in. To see those opportunities still hanging out in the cross section in the equity space and then our ability to extract those, really interesting points.

Jeff, let's stay with you. Let's pivot the macro view for a second to a geographic macro lens. Two major Asian markets making new milestones, perhaps in different directions. So talk to us a little bit about these regions.

JEFF SHEN: Absolutely. So I think what you're referring to here is essentially Japan and China. And I'll say that there's a lot of excitement for Japan and there is a lot of pessimism for China. That's really the big picture here.

And on Japan, I'll say that there really a couple of things that's actually going on that's actually quite exciting. One is just on Japanese consumer. You know, people probably used to us talking about the American consumer, but Japan is the third largest economy in the world. And the consumer base is actually seem to be wakening up a bit, especially given some of the inflationary pressure that we've actually seen.

So here, what we're doing is essentially tracking a bit of a high frequency credit card transaction for the Japanese consumers. Clearly, some seasonal patterns, but general trend is certainly pointing that over the last two or three years, there's quite a bit of strength in the Japanese consumption. And that's what's really driving quite a bit of excitement both for the domestic economies and also domestic exposed stocks, alongside with some of the international companies that actually may have Japanese consumer exposure.

On the other side of it is when we look at the corporate governance for Japan, there's also a lot of excitement in the sense that corporate governance is actually improving steadily. And also it's reaching a point that's actually really consistent with a lot of the developed market in terms of, with the chart on the top right, we essentially show the percentage of the independent directors on the board. And as you can see that it's-- the latest figure is actually showing about 37% that are actually independent board members.

Lots of other data that we can show, but actually that's getting the corporate governance in place to focus more on shareholder value is another positive driver for Japanese stocks. So I think overall, I'll say that the market certainly has run up, but we think some of these structural themes underneath the Japanese economy is quite exciting and is probably here to stay.

The other side of the coin here is certainly that we see that there's a lot of negative sentiment towards China. And I think some of it is certainly related to the overall geopolitical tension that is actually very much here to stay. And some of it is also has to do with the domestic economy that there was a lot of hope for a rebound of the economy post the COVID lockdown. And I think, by and large, there's actually been a bit of a difficult period from a fundamental economy perspective.

And our beta timing view here, on the lower right chart here, you can also see that momentum certainly is quite negative, sentiment is quite negative. There's certainly starting to show that there is value in the market. So I think there's actually some-- it's been a bit of a switch, I think, in China, going from a very growth-oriented market for the good last, you know, 20 years, to switch over the last two or three years into a bit more of a value market.

And I think there's a bit of an ongoing debate within the team here is also that should we switch the Japan model that we've actually used in the previous 20 years to fit it more into the China market and use the China market model that we actually used for the previous 10-plus years to fit it more into the Japanese market, just given the changing nature of the market.

But also that on the overall beta view for the China market, I think there's some value. There's some green shoots on some of the fundamental things that certainly not getting worse. But I'll say that that's certainly counterbalanced with the geopolitics, alongside with the very negative sentiment.

JEFF ROSENBERG: Really interesting on the beta side. Let me just ask you a question about the alpha side. I know that's a big focus of yours. It's been a big focus of the markets. A number of headlines about alpha players in the Quant world facing difficulties. Tell us a little bit about what's going on, from your perspective.

JEFF SHEN: Absolutely. I think when people say Quant, clearly, from a distance, they all look the same. Within the Quant world, clearly, there are lots of different investment horizons, lots different investment process. So I think the current focus of the Quant quake in China, if you will, are really focusing on some of the high frequency players in the market. That's both from the regulator perspective and also from some of the underperformance.

People essentially are using price and volume as main ingredients for short-term forecasting. They are actually seeing quite a bit of a challenge. And there's also-- I'll say that the other part is also a lot of quantitative managers may also bias against large cap and focus a bit more on the small cap. So that size bias has also been problematic, given that some of the smaller cap names tend to be more risky, which experience a greater drawdown in the current economic downturn.

And also the national team in China, the state sort of purchase of the equity market also has been more focusing on the large cap space. So I think that's probably the large cap versus small cap dynamic is also hurting some of the players in this space.

JEFF ROSENBERG: That's great. Thanks for those clarifications. I'm going to pivot a bit to the fixed income perspective, staying on the macro lens here. Want to look at some of the longer-term perspectives around the interest rate and the interest rate outlook. One of the big things that we see here and what's illustrated in this chart is taking a little bit longer-term perspective than the next week or two. What's the Fed going to do? What's the timing?

It's really thinking about what the area of the interest rate markets are that the Fed doesn't have as much control over, and that's the longer-term term premium. When you look through this table, it's a list of global structural factors. And you see it sort of old regime and new regime. And in each case, the kind of old regime arguments were arguments for a flatter term premium, a flatter inflation term premium. And the impact of that was less pass through from Fed policy into longer-term interest rates.

I think we have to be very cognizant of the potential here of a structural change, with regards to regime and regime positioning, that when you look across each one of these factors that used to argue for flatter term structures, they're now arguing in the opposite direction. Where it is very important-- and if we go on into the next slide, we can see some pictures of some of these factors. You look at the top left chart here, the level of macroeconomic uncertainty in both growth and inflation.

The pre-COVID period was that of the Great Moderation. We've certainly seen in the post COVID period a huge uptick in terms of volatility. The benefits of that moderation were in term structure and flattening the term structure. You look at the lower left chart and the upper right-hand chart, this is the fiscal backdrop to this period of very flat term premium in the United States.

Those are clearly fiscal backdrops that have changed. You're looking at the potential here for 8% to 10% deficits from an era of 2% deficits. You're looking at structurally higher amounts of debt issuance that have to increasingly be financed by private owners as opposed to by central banks. That's the lower right hand chart. The exiting of the QE era.

We're currently in the QT era. Yes, we may be soon in the QTT era. The Quantitative Tightening Tapering. But it's still an era that's far removed from what was the point of that post GFC and as well in the COVID period of quantitative easing. And that was to flatten the term premium, to extend the degree of accommodation available to monetary policy makers at the zero lower bound.

Now we're very far away from the zero lower bound, fiscal policy and private debt absorption become much bigger issues. And so one of the concerns we see in terms of market positioning is this kind of consensus view around duration that irrespective of where one holds their duration, that all duration will perform the same. And I think, generally, you'd expect a yield curve steepening in a Fed cutting cycle. We expect that as well.

Not so quickly. The curve has been flattening and the timing of steepening trades becomes really important because steepening trades cost you money to enter or to exit. So the broader issue here, though, is the potential that you could have very surprising market dynamics where the Fed is raising-- sorry, where the Fed is cutting interest rates. But you may not see the cut propagate out the curve to the same degree.

So we'll see how that plays out. Leaves us a little bit more neutral. Let's flip to the next slide. Raff, I'm going to summarize the fixed income positioning. I'm going to turn it back to you to summarize some of the indicative views around equity positioning. The stuff that you started with in terms of the collapse and recession probabilities, that's a positive backdrop to credit and credit risk positioning.

The difference in the fixed income markets is it's mostly directional, not as much cross-sectional opportunity to trade those big macro themes. And most of that recession decline is priced in. You have mid expansion levels in credit spreads. Still attractive, but attractive mostly from a carry perspective rather than price appreciation.

I think you're going to see a swing towards income as a focus. Once the Fed does start cutting interest rates and those money market yields start to come down, it'll become more apparent that, to lock in these levels of yields, you're going to have to move out the yield curve. And you'll see credit instruments be attractive in that environment. But mostly as a preservation of income rather than price appreciation.

On the duration side, as I just mentioned, duration is more friendly to portfolio construction than what we saw in the excessive inflationary environment. Stock bond correlations moving back down towards zero and, potentially in extremes, towards negatives. We think most of that benefit will be in the front end of the curve, but you got to be patient with respect to that curve positioning.

Raff, with that, is a couple of highlights on the fixed income side. Let's hear from you on the equity side.

RAFFAELE SAVI: Yes, I mean, I was looking at this -- at these three charts we present here, Jeff, and thinking, this is -- the way I describe it is it's positive with sort of with a stronger conviction in the strength of the cycle. So you're seeing, for example, more constructive on semiconductors, more constructive on financials funded by staples sort of coming in back to neutral.

On the style side-- and I know Andrew will talk a little bit about some of those views, but more open to leverage and positive across the board on styles. And on countries, you see again, the cyclical strength with sort of places like Taiwan or Germany that tend to benefit in a cyclical expansion. So I would say that what we've seen put together through the conversation is today is actually a pretty constructive view.

And again, I -- you know, paraphrasing many before us, but sort of if the data were to change, we change our view. This isn't a sort of we are perma-bullish but the positivity that we had last year persists and expands this year. So it's definitely a message of optimism.

In 2023, maybe it was a little bit against consensus. Now I think that consensus did move more in a balance to slightly positive. But still, to Jeff's point, there's a lot of opportunities in the cross section where we think consensus hasn't quite caught up with the strength and the direction that we see in the data. And that's where we're hoping to add value our clients.

JEFF ROSENBERG: Awesome. Thank you for those comments both Raff and Jeff. And with that, I want to introduce Andrew Ang. A pleasure to be with you here, Andrew. And we at BlackRock Systematic, not just you, all of us take a look at financial markets, not only from the lens that we just described, alternative data, systematic application, but also from a factors lens.

As one of those who look at that, I am very intrigued and excited to hear what you have to say about something I think we both observed, which are tremendously strong returns from a factor lens in the equity world, as well as tremendous volatility in those factors. And I know you've done a lot of work on factor timing. I know there's quite a debate around how we factor time. So really looking forward to your comments right now.

ANDREW ANG: Well, thanks, Jeff. And I think the world of factors, particularly over the last three years, is one of a comeback story. We see these factors performing in all markets, multi asset factors, and as you said, strong performance in equity factors as well. And the reason, I think, is pretty simple. And you alluded to it in these new structural determinants of the yield curve also reflecting the return of risk and the normalcy of risk premiums in the economy.

Put simply, the return of macro risk. We should see enhanced macro risk premiums. And all of these style factors are due to these macro types of risk premiums. So let me talk a little bit about style factors in equities, in particular. And you mentioned about these pronounced cycles in style factors. And I think there's no better example of that than equity value.

We've gone through such a roller coaster. We started off in 2018 and 2019. We had some poor performance due to being in late in the cycle. And actually, that's consistent with economic theory because the best performance for the value factor is early in the cycle. We get these operating leverage in economies of scale from companies generally with a lot of fixed physical capital.

Then we had a horrendous event in 2020 with COVID. And as expected, companies with a lot of physical capital require a lot of physical interactions to make money. And we just didn't have those. So it was growth and a particularly growth tech that allowed us to live in this virtual world. As the economy reopened, and consistent with economic theory, we saw a comeback in 2021 and 2022 of value.

And actually, the comments that you made, Jeff, and actually Raffaele made earlier with the duration arguments, I think it's not a coincidence that growth, which is long duration equities, underperformed as we saw inflation ticking up. And also interest rates due to policy makers also increasing. Value, being that short duration security, outperformed decisively the long duration growth in both '21 and 2022.

Then most recently in 2023, we've been on the AI machine learning theme, especially for generative AI, with large language models. And that has been detrimental to the value factor. It's been very positive to certain stocks in technology, particularly the Magnificent Seven. But taking all of that, actually, the cycles for value seem to have got larger in magnitude. And they've actually decreased somewhat in terms of duration.

And let me turn to this slide now, which actually, we've started factor timing in 2016. And when we published research in 2017, it was actually this indicator right here, the economic regime, that was the most powerful predictor of future style factor returns. And that's proven true out of sample as well.

And if we look at the business cycle, we can just identify simply four quadrants. We want to have as the economy opens up, coming out from recession, we want those economies of scale or the operating leverage from value firms, small firms also benefit from an economy that's really blossoming. As we get into a more mature business cycle, those trends have been established and then momentum starts to take off.

At the very late stage, well, we would rather more defense in our portfolio. So we pivot towards the defensive factors of quality and minimum volatility. And it's this business cycle that has proven to be actually the most predictive indicator for these factor returns. So factors are predictable. I think we can sensibly time them. But I think we probably would want to rely on other information, other than just the business cycle.

And you alluded to that we can actually use big data and AI to time some of these style factors too. So the other two categories that we look at to time factors are valuations. All assets become rich or cheap and style factors are no exception to that. And then we can look at sentiment. And sentiment comes in various forms. There's, obviously, simple price momentum. So yes, there is a momentum of momentum.

But we can also look at other indicators, fundamental forms of momentum and short interest.

JEFF ROSENBERG: Andrew, super interesting to talk about factors with respect to the economic cycles. Now, Jeff and Raff earlier in the conversation, we talked a lot about some of the unique factors of this cycle, whether it's Fed policy timing, what Jeff and I talked about in terms of unique ways of playing inflation, certainly the rise of AI, generative AI. How do these unique factors of this cycle factor into your factor timing model approach?

ANDREW ANG: Yeah, lots of factors there, Jeff.

 

JEFF ROSENBERG: Yeah.

ANDREW ANG: Yeah, so this is a great question because you're absolutely right that each business cycle is unique, but there are some commonalities. And in fact, being a subject to cyclicality is part and parcel of being a factor investor. We received this long run premium for these cyclical movements. But there is a way that we can mitigate or lessen some of that variability.

And that's by looking at proprietary measures or implementations of each of these factors. I think today, we can all understand the importance of AI or intellectual property. And so if we look at some proprietary value metrics that directly measure IP, such as trademark or patents, these are absolutely valuable. But they usually don't appear on balance sheets or earnings statements.

And therefore, we can actually complement the more traditional definitions of factors. And what we've observed is that there's been a widening difference between the returns to proprietary factors, like intangibles for value, and the more generic traditional implementations. If we want to time, we should actually be timing the more traditional, generic measures of factors.

JEFF ROSENBERG: OK. Great. Thanks very much to Andrew. Thanks very much to Jeff and Raff for joining us. And thanks to all of you for joining us for this quarter's webcast. We'll be back next quarter with another DTM Webcast. And while you're waiting for that, if you're looking for more information, please reach out to your BlackRock relationship manager. And we look forward to seeing you again soon. Thanks.

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Decoding the Markets: Cutting through consensus

JEFF ROSENBERG: Hi, everyone. Welcome to this quarter's Decoding The Markets Webcast. I'm Jeff Rosenberg, senior portfolio manager in BlackRock Systematic. I am joined by Raphael Savi, global head of BlackRock Systematic, Jeff Shen, co-head of Systematic Equity, and Andrew Ang, head of Systematic Factors, Sustainability, and Solutions.

For this quarter's Decoding The Markets, we're going to cover two topics. First topic on looking at the global policy, backdrop, market environment, outlook for equity and fixed income investing. Jeff and Raff will join me on that. And then we'll turn to our second topic, special topic guest here with Andrew Ang looking at the outlook for the same issues from a factors lens.

So let's turn to the conversation. And Raff, I want to turn to you. If we think about where we were not that long ago, a year ago, we would have been talking about something completely different. The consensus outlook was for expectations of significant recession -- recession outlook.

You and Systematic platform had a very different perspective. Fast forwarding to today, the outlook for the consensus has shifted downward towards expecting soft landing and a decreased expectation for recession.

So take us through these charts and the outlook and for how things look with respect to this biggest of questions around recessions.

RAFFAELE SAVI: Thank you, Jeff. Yes, last year was highly unusual. I think it was highly unusual on many dimensions. But the principal one is the one that you alluded to, right? The markets have been way ahead of consensus, in terms of a more sanguine outlook for risk assets and for the economy in general.

We can get a little bit into the details of why that happened, but I want to reiterate this concept that, oftentimes, markets are a little bit ahead of consensus, but it's unusual for them to be ahead for so long, right? So consensus has been really, I think, stuck in this idea of something is going to break.

The hiking cycle that we've seen has been too steep and too fast and there is no way that global economies can survive 450-500 basis points of rate hikes in 11 months. And I think what we've seen last year has been hard to explain, based on sort of historical patterns.

But the guide for us in Systematic has been data, as is always the case. And I like to make it a little bit contentious and say that last year, 2023, was a year in which data beat theory. Economic theory couldn't quite figure out how this immaculate deflation or soft-landing Goldilocks could happen. And that's where the consensus was.

But the data has been pretty consistently pointing at the same at the same direction. And I'd say, by and large-- and you and I will talk about it a little bit using a few charts-- by and large, that's the story also in markets today. There are concerns, of course. There's still a lot of questions that have not fully been answered, in terms of what shape this cycle will have.

But I would say that both on the growth side and on the inflation side, data keeps being positive. There are a couple of nuances that we'll need to debate, but I would say what you see reflected on the left-hand side in this chart sort of that because of these elements, recession probabilities have sort of kept coming down in our models. And they are at the lowest they've been in a long time.

Maybe I can cue you up on this one. As I said, last year was a little bit more unidirectional. There are a couple of nuances we want to discuss. And maybe you can take it on that front.

JEFF ROSENBERG: Yeah, the right-hand side here is something we've been spending a lot of time looking at. And that's one of the risks to this soft-landing outlook, which is both on the growth side, but also on the inflation side. Inflation has been benefited by the disinflation that we've seen in goods prices.

And so this issue around the Red Sea is one of many risk factors we'll get into. Some of our interesting data highlights that may undermine some of that good news story, in terms of inflation. But I want to turn back to you, Raff, and turn to the next slide, which is really where we're going to talk about some of the data that we're looking at that is looking at the inflationary side. So why don't you take us through some of the interesting highlights on the inflation front?

RAFFAELE SAVI: Yeah, I would say the two aspects that we've been focusing on, if you just break it down from the top, you know, goods, services, you know, shelter of course. And then a little bit where is the market relative to this? So again, what I highlighted earlier is this idea that sometimes you have data points that sort of align in one direction and it's not quite clear how that happens.

And we are more sort of in trying to answer the what than the how at this stage. So the what here, top right chart, scraping millions of prices out of web platforms on a daily basis across the globe. Again, we see a softening in web pricing pretty much across the board.

Actually, I would say that if you look at the US in the last couple of months, they seem to be coming down faster than we've seen in any point in our sample. So that might indicate that actually that deflationary pressures might be behind the corner, which is obviously something that is still a little bit out of consensus.

We didn't-- not to overburden this slide, we didn't put in wages, big component of services or shelter. Again, using high frequency, high granularity data like rent prices or house sale prices on platforms like Zillow in the US and job posting data for sort of entry level wage in different types of jobs, we see a similar dynamics.

The disinflationary pressures, by and large, are dissipating faster than expected in the economy. Now, the bottom left chart here shows that, by and large, when it comes to monetary policy, that had become a little bit consensus, right? So while last year, the concern in many sort of commentators and strategists was that this was going to be hard to get a handle on, this being the inflationary pressures.

Now it seems to us that sort of consensus on that particular cohort is that yes, the Fed is done and that cuts are coming, right?

JEFF ROSENBERG: Let me pick up that theme on inflation dissipating and take it from the fixed income perspective. Let's look at the next slide here for a second. You know, initially, there was some at least kind of dissonance between an equity market that was very buoyant and a fixed income market that was pricing a lot of cuts.

And so one of the things I tried to do in this chart is distinguish with the taxonomy exactly what's going on in the bond market between different types of cuts that the market is reflecting. And so that last category there is clearly not what we're looking at when we're looking at a bond market that's pricing for cuts and an equity market that's pricing for growth.

There's no disconnect. This is all about the disinflation, Raff, that you just mentioned. And really what the bond market is focused on is the two top categories. The category of what I call maintenance cuts and the second category which is calibration cuts. So maintenance cuts basically says, keep the real interest rate policy constant because as inflation falls, if you don't cut the nominal rate, you'll be effectively increasing real interest rates.

Most of what the bond market is expecting this year is reflecting this anticipated decline in inflation and therefore, a necessary decline in nominal rates to keep the real policy rate unchanged. I think the swing factor between where we started the year, six to seven cuts expected in fixed income, to where we are today, more like three to four and pushing back the timing of it is the shifting between maintenance cuts on falling inflation, where the Fed has said, What's the rush? The data has said, What's the rush?

And so the bond market's pricing back the rush. And so you're pushing back from March to June. But also pressing back because of the growth side that you need the calibration cuts. You only need the calibration cuts if growth slows to the degree that it starts to signal to policymakers, yes, indeed, this policy is too restrictive. Actually, too much growth tells you the opposite, that policy is not restrictive enough. And so that's where you're seeing a lot of bond market volatility around the pricing of inflation.

I want to pivot here, bring Jeff Shen back into the conversation and talk about the inflation and the inflation thematic opportunities that we're seeing on the equity side. So, Jeff, over to you.

JEFF SHEN: Thanks, Jeff. I'll say that on the inflationary side, and I mean, what Raffaele really talked about is certainly quite important in terms of pointing towards the scenario of soft landing. And how we are thinking about this is actually clearly, we're going to look at a lot of data. So one chart that we look at on the left-hand side is actually -- it's a bit of a visual of looking at the Dow Jones news.

Essentially, look at how often high inflation, higher inflation is actually mentioned in relation to the lower inflation that's being mentioned. And then found the document that's being mentioned. And you can see that from the early part of 2020, that trend certainly start to increase. And especially given some of the supply chain issues alongside with some of the inflationary pressure that we've actually seen around the globe.

And the inflation mentioned really peaked around the end of 2022 and beginning of 2023. And that's when actually you see that inflation mentioned start to decline in a pretty significant fashion. So when we look at that rotation, clearly, inflation is becoming less of a concern and there's much greater of a disinflation that Jeff and Raffaele were just mentioning.

Now, the key question that we want to ask is, What does that mean for asset pricing? Has the market been pricing in this kind of disinflationary type of type of rotation. One interesting thing we look at is actually to look at the cross-sectional market returns in the equity market. And here we look at two examples.

So the top right chart, essentially to look at when we look at COVID-related rotation, you can think about reopening in relation to shutdown and how the cross sectional equity market is actually pricing in between the two. And it's actually reasonably evident that when we look at from a COVID reopening perspective, pretty much everything is back to normal.

So when we look at the equity market cross-sectional behavior in relation to what we've actually seen before COVID, the correlation is actually becoming one, meaning that the cross-sectional move, any of the pricing of the COVID risk is essentially gone. And that certainly wasn't really the case if you go back to the early part of 2020 before the vaccine, the correlation is much closer to zero, meaning that the market is not really pricing any of the reopening.

Now, if you take the same technique and apply this for inflation, the interesting thing that we see is actually there's actually-- even though there is less of a talk around inflation, but from a cross-sectional movement perspective-- to what Jeff was talking about earlier-- there's actually still not enough rotation that's actually happening. So I think the market is certainly adjusting to a different type of inflationary environment.

But when we look at the equity market cross-sectional behavior, there's still a lot of more room for the equity market in the cross-sectional sense to price in this lower inflationary risk, going forward. So I think soft landing, while maybe becoming a bit of a talk of the town, but from the equity market opportunity perspective, there's still plenty of opportunities ahead.

JEFF ROSENBERG: Those a really good points, Jeff, and reminder of what we love about the equity market cross-sectional opportunities relative to fixed income, where the inflationary consensus in directional terms is so quickly priced in. To see those opportunities still hanging out in the cross section in the equity space and then our ability to extract those, really interesting points.

Jeff, let's stay with you. Let's pivot the macro view for a second to a geographic macro lens. Two major Asian markets making new milestones, perhaps in different directions. So talk to us a little bit about these regions.

JEFF SHEN: Absolutely. So I think what you're referring to here is essentially Japan and China. And I'll say that there's a lot of excitement for Japan and there is a lot of pessimism for China. That's really the big picture here.

And on Japan, I'll say that there really a couple of things that's actually going on that's actually quite exciting. One is just on Japanese consumer. You know, people probably used to us talking about the American consumer, but Japan is the third largest economy in the world. And the consumer base is actually seem to be wakening up a bit, especially given some of the inflationary pressure that we've actually seen.

So here, what we're doing is essentially tracking a bit of a high frequency credit card transaction for the Japanese consumers. Clearly, some seasonal patterns, but general trend is certainly pointing that over the last two or three years, there's quite a bit of strength in the Japanese consumption. And that's what's really driving quite a bit of excitement both for the domestic economies and also domestic exposed stocks, alongside with some of the international companies that actually may have Japanese consumer exposure.

On the other side of it is when we look at the corporate governance for Japan, there's also a lot of excitement in the sense that corporate governance is actually improving steadily. And also it's reaching a point that's actually really consistent with a lot of the developed market in terms of, with the chart on the top right, we essentially show the percentage of the independent directors on the board. And as you can see that it's-- the latest figure is actually showing about 37% that are actually independent board members.

Lots of other data that we can show, but actually that's getting the corporate governance in place to focus more on shareholder value is another positive driver for Japanese stocks. So I think overall, I'll say that the market certainly has run up, but we think some of these structural themes underneath the Japanese economy is quite exciting and is probably here to stay.

The other side of the coin here is certainly that we see that there's a lot of negative sentiment towards China. And I think some of it is certainly related to the overall geopolitical tension that is actually very much here to stay. And some of it is also has to do with the domestic economy that there was a lot of hope for a rebound of the economy post the COVID lockdown. And I think, by and large, there's actually been a bit of a difficult period from a fundamental economy perspective.

And our beta timing view here, on the lower right chart here, you can also see that momentum certainly is quite negative, sentiment is quite negative. There's certainly starting to show that there is value in the market. So I think there's actually some-- it's been a bit of a switch, I think, in China, going from a very growth-oriented market for the good last, you know, 20 years, to switch over the last two or three years into a bit more of a value market.

And I think there's a bit of an ongoing debate within the team here is also that should we switch the Japan model that we've actually used in the previous 20 years to fit it more into the China market and use the China market model that we actually used for the previous 10-plus years to fit it more into the Japanese market, just given the changing nature of the market.

But also that on the overall beta view for the China market, I think there's some value. There's some green shoots on some of the fundamental things that certainly not getting worse. But I'll say that that's certainly counterbalanced with the geopolitics, alongside with the very negative sentiment.

JEFF ROSENBERG: Really interesting on the beta side. Let me just ask you a question about the alpha side. I know that's a big focus of yours. It's been a big focus of the markets. A number of headlines about alpha players in the Quant world facing difficulties. Tell us a little bit about what's going on, from your perspective.

JEFF SHEN: Absolutely. I think when people say Quant, clearly, from a distance, they all look the same. Within the Quant world, clearly, there are lots of different investment horizons, lots different investment process. So I think the current focus of the Quant quake in China, if you will, are really focusing on some of the high frequency players in the market. That's both from the regulator perspective and also from some of the underperformance.

People essentially are using price and volume as main ingredients for short-term forecasting. They are actually seeing quite a bit of a challenge. And there's also-- I'll say that the other part is also a lot of quantitative managers may also bias against large cap and focus a bit more on the small cap. So that size bias has also been problematic, given that some of the smaller cap names tend to be more risky, which experience a greater drawdown in the current economic downturn.

And also the national team in China, the state sort of purchase of the equity market also has been more focusing on the large cap space. So I think that's probably the large cap versus small cap dynamic is also hurting some of the players in this space.

JEFF ROSENBERG: That's great. Thanks for those clarifications. I'm going to pivot a bit to the fixed income perspective, staying on the macro lens here. Want to look at some of the longer-term perspectives around the interest rate and the interest rate outlook. One of the big things that we see here and what's illustrated in this chart is taking a little bit longer-term perspective than the next week or two. What's the Fed going to do? What's the timing?

It's really thinking about what the area of the interest rate markets are that the Fed doesn't have as much control over, and that's the longer-term term premium. When you look through this table, it's a list of global structural factors. And you see it sort of old regime and new regime. And in each case, the kind of old regime arguments were arguments for a flatter term premium, a flatter inflation term premium. And the impact of that was less pass through from Fed policy into longer-term interest rates.

I think we have to be very cognizant of the potential here of a structural change, with regards to regime and regime positioning, that when you look across each one of these factors that used to argue for flatter term structures, they're now arguing in the opposite direction. Where it is very important-- and if we go on into the next slide, we can see some pictures of some of these factors. You look at the top left chart here, the level of macroeconomic uncertainty in both growth and inflation.

The pre-COVID period was that of the Great Moderation. We've certainly seen in the post COVID period a huge uptick in terms of volatility. The benefits of that moderation were in term structure and flattening the term structure. You look at the lower left chart and the upper right-hand chart, this is the fiscal backdrop to this period of very flat term premium in the United States.

Those are clearly fiscal backdrops that have changed. You're looking at the potential here for 8% to 10% deficits from an era of 2% deficits. You're looking at structurally higher amounts of debt issuance that have to increasingly be financed by private owners as opposed to by central banks. That's the lower right hand chart. The exiting of the QE era.

We're currently in the QT era. Yes, we may be soon in the QTT era. The Quantitative Tightening Tapering. But it's still an era that's far removed from what was the point of that post GFC and as well in the COVID period of quantitative easing. And that was to flatten the term premium, to extend the degree of accommodation available to monetary policy makers at the zero lower bound.

Now we're very far away from the zero lower bound, fiscal policy and private debt absorption become much bigger issues. And so one of the concerns we see in terms of market positioning is this kind of consensus view around duration that irrespective of where one holds their duration, that all duration will perform the same. And I think, generally, you'd expect a yield curve steepening in a Fed cutting cycle. We expect that as well.

Not so quickly. The curve has been flattening and the timing of steepening trades becomes really important because steepening trades cost you money to enter or to exit. So the broader issue here, though, is the potential that you could have very surprising market dynamics where the Fed is raising-- sorry, where the Fed is cutting interest rates. But you may not see the cut propagate out the curve to the same degree.

So we'll see how that plays out. Leaves us a little bit more neutral. Let's flip to the next slide. Raff, I'm going to summarize the fixed income positioning. I'm going to turn it back to you to summarize some of the indicative views around equity positioning. The stuff that you started with in terms of the collapse and recession probabilities, that's a positive backdrop to credit and credit risk positioning.

The difference in the fixed income markets is it's mostly directional, not as much cross-sectional opportunity to trade those big macro themes. And most of that recession decline is priced in. You have mid expansion levels in credit spreads. Still attractive, but attractive mostly from a carry perspective rather than price appreciation.

I think you're going to see a swing towards income as a focus. Once the Fed does start cutting interest rates and those money market yields start to come down, it'll become more apparent that, to lock in these levels of yields, you're going to have to move out the yield curve. And you'll see credit instruments be attractive in that environment. But mostly as a preservation of income rather than price appreciation.

On the duration side, as I just mentioned, duration is more friendly to portfolio construction than what we saw in the excessive inflationary environment. Stock bond correlations moving back down towards zero and, potentially in extremes, towards negatives. We think most of that benefit will be in the front end of the curve, but you got to be patient with respect to that curve positioning.

Raff, with that, is a couple of highlights on the fixed income side. Let's hear from you on the equity side.

RAFFAELE SAVI: Yes, I mean, I was looking at this -- at these three charts we present here, Jeff, and thinking, this is -- the way I describe it is it's positive with sort of with a stronger conviction in the strength of the cycle. So you're seeing, for example, more constructive on semiconductors, more constructive on financials funded by staples sort of coming in back to neutral.

On the style side-- and I know Andrew will talk a little bit about some of those views, but more open to leverage and positive across the board on styles. And on countries, you see again, the cyclical strength with sort of places like Taiwan or Germany that tend to benefit in a cyclical expansion. So I would say that what we've seen put together through the conversation is today is actually a pretty constructive view.

And again, I -- you know, paraphrasing many before us, but sort of if the data were to change, we change our view. This isn't a sort of we are perma-bullish but the positivity that we had last year persists and expands this year. So it's definitely a message of optimism.

In 2023, maybe it was a little bit against consensus. Now I think that consensus did move more in a balance to slightly positive. But still, to Jeff's point, there's a lot of opportunities in the cross section where we think consensus hasn't quite caught up with the strength and the direction that we see in the data. And that's where we're hoping to add value our clients.

JEFF ROSENBERG: Awesome. Thank you for those comments both Raff and Jeff. And with that, I want to introduce Andrew Ang. A pleasure to be with you here, Andrew. And we at BlackRock Systematic, not just you, all of us take a look at financial markets, not only from the lens that we just described, alternative data, systematic application, but also from a factors lens.

As one of those who look at that, I am very intrigued and excited to hear what you have to say about something I think we both observed, which are tremendously strong returns from a factor lens in the equity world, as well as tremendous volatility in those factors. And I know you've done a lot of work on factor timing. I know there's quite a debate around how we factor time. So really looking forward to your comments right now.

ANDREW ANG: Well, thanks, Jeff. And I think the world of factors, particularly over the last three years, is one of a comeback story. We see these factors performing in all markets, multi asset factors, and as you said, strong performance in equity factors as well. And the reason, I think, is pretty simple. And you alluded to it in these new structural determinants of the yield curve also reflecting the return of risk and the normalcy of risk premiums in the economy.

Put simply, the return of macro risk. We should see enhanced macro risk premiums. And all of these style factors are due to these macro types of risk premiums. So let me talk a little bit about style factors in equities, in particular. And you mentioned about these pronounced cycles in style factors. And I think there's no better example of that than equity value.

We've gone through such a roller coaster. We started off in 2018 and 2019. We had some poor performance due to being in late in the cycle. And actually, that's consistent with economic theory because the best performance for the value factor is early in the cycle. We get these operating leverage in economies of scale from companies generally with a lot of fixed physical capital.

Then we had a horrendous event in 2020 with COVID. And as expected, companies with a lot of physical capital require a lot of physical interactions to make money. And we just didn't have those. So it was growth and a particularly growth tech that allowed us to live in this virtual world. As the economy reopened, and consistent with economic theory, we saw a comeback in 2021 and 2022 of value.

And actually, the comments that you made, Jeff, and actually Raffaele made earlier with the duration arguments, I think it's not a coincidence that growth, which is long duration equities, underperformed as we saw inflation ticking up. And also interest rates due to policy makers also increasing. Value, being that short duration security, outperformed decisively the long duration growth in both '21 and 2022.

Then most recently in 2023, we've been on the AI machine learning theme, especially for generative AI, with large language models. And that has been detrimental to the value factor. It's been very positive to certain stocks in technology, particularly the Magnificent Seven. But taking all of that, actually, the cycles for value seem to have got larger in magnitude. And they've actually decreased somewhat in terms of duration.

And let me turn to this slide now, which actually, we've started factor timing in 2016. And when we published research in 2017, it was actually this indicator right here, the economic regime, that was the most powerful predictor of future style factor returns. And that's proven true out of sample as well.

And if we look at the business cycle, we can just identify simply four quadrants. We want to have as the economy opens up, coming out from recession, we want those economies of scale or the operating leverage from value firms, small firms also benefit from an economy that's really blossoming. As we get into a more mature business cycle, those trends have been established and then momentum starts to take off.

At the very late stage, well, we would rather more defense in our portfolio. So we pivot towards the defensive factors of quality and minimum volatility. And it's this business cycle that has proven to be actually the most predictive indicator for these factor returns. So factors are predictable. I think we can sensibly time them. But I think we probably would want to rely on other information, other than just the business cycle.

And you alluded to that we can actually use big data and AI to time some of these style factors too. So the other two categories that we look at to time factors are valuations. All assets become rich or cheap and style factors are no exception to that. And then we can look at sentiment. And sentiment comes in various forms. There's, obviously, simple price momentum. So yes, there is a momentum of momentum.

But we can also look at other indicators, fundamental forms of momentum and short interest.

JEFF ROSENBERG: Andrew, super interesting to talk about factors with respect to the economic cycles. Now, Jeff and Raff earlier in the conversation, we talked a lot about some of the unique factors of this cycle, whether it's Fed policy timing, what Jeff and I talked about in terms of unique ways of playing inflation, certainly the rise of AI, generative AI. How do these unique factors of this cycle factor into your factor timing model approach?

ANDREW ANG: Yeah, lots of factors there, Jeff.

 

JEFF ROSENBERG: Yeah.

ANDREW ANG: Yeah, so this is a great question because you're absolutely right that each business cycle is unique, but there are some commonalities. And in fact, being a subject to cyclicality is part and parcel of being a factor investor. We received this long run premium for these cyclical movements. But there is a way that we can mitigate or lessen some of that variability.

And that's by looking at proprietary measures or implementations of each of these factors. I think today, we can all understand the importance of AI or intellectual property. And so if we look at some proprietary value metrics that directly measure IP, such as trademark or patents, these are absolutely valuable. But they usually don't appear on balance sheets or earnings statements.

And therefore, we can actually complement the more traditional definitions of factors. And what we've observed is that there's been a widening difference between the returns to proprietary factors, like intangibles for value, and the more generic traditional implementations. If we want to time, we should actually be timing the more traditional, generic measures of factors.

JEFF ROSENBERG: OK. Great. Thanks very much to Andrew. Thanks very much to Jeff and Raff for joining us. And thanks to all of you for joining us for this quarter's webcast. We'll be back next quarter with another DTM Webcast. And while you're waiting for that, if you're looking for more information, please reach out to your BlackRock relationship manager. And we look forward to seeing you again soon. Thanks.

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For investors in Central America, these securities have not been registered before the Securities Superintendence of the Republic of Panama, nor did the offer, sale or their trading procedures. The registration exemption has made according to numeral 3 of Article 129 of the Consolidated Text containing of the Decree-Law No. 1 of July 8, 1999 (institutional investors). Consequently, the tax treatment set forth in Articles 334 to 336 of the Unified Text containing Decree-Law No. 1 of July 8, 1999, does not apply to them. These securities are not under the supervision of the Securities Superintendence of the Republic of Panama. The information contained herein does not describe any product that is supervised or regulated by the National Banking and Insurance Commission (CNBS) in Honduras. Therefore any investment described herein is done at the investor’s own risk. In Costa Rica, any securities or services mentioned herein constitute an individual and private offer made through reverse solicitation upon reliance on an exemption from registration before the General Superintendence of Securities (SUGEVAL), pursuant to articles 7 and 8 of the Regulations on the Public Offering of Securities (Reglamento sobre Oferta Pública de Valores). This information is confidential, and is not to be reproduced or distributed to third parties as this is NOT a public offering of securities in Costa Rica. The product being offered is not intended for the Costa Rican public or market and neither is registered or will be registered before the SUGEVAL, nor can be traded in the secondary market. If any recipient of this documentation receives this document in El Salvador, such recipient acknowledges that the same has been delivered upon their request and instructions, and on a private placement basis. In Guatemala, this communication and any accompanying information (the Materials) are intended solely for informational purposes and do not constitute (and should not be interpreted to constitute) the offering, selling, or conducting of business with respect to such securities, products or services in the jurisdiction of the addressee (this Jurisdiction), or the conducting of any brokerage, banking or other similarly regulated activities (Financial Activities) in the Jurisdiction. Neither BlackRock, nor the securities, products and services described herein, are registered (or intended to be registered) in the Jurisdiction. Furthermore, neither BlackRock, nor the securities, products, services or activities described herein, are regulated or supervised by any governmental or similar authority in the Jurisdiction. The Materials are private, confidential and are sent by BlackRock only for the exclusive use of the addressee. The Materials must not be publicly distributed and any use of the Materials by anyone other than the addressee is not authorized. The addressee is required to comply with all applicable laws in the Jurisdiction, including, without limitation, tax laws and exchange control regulations, if any.

This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.

This document is marketing material.

In the UK and Non-European Economic Area (EEA) countries: this is issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

In the European Economic Area (EEA): this is issued by BlackRock (Netherlands) B.V., authorised and regulated by the Netherlands Authority for the Financial Markets. Registered office Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Tel: 31-20-549-5200. Trade Register No. 17068311 For your protection telephone calls are usually recorded.

In Italy: For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in Italian.

BlackRock Advisors (UK) Limited - Dubai Branch is a DIFC Foreign Recognised Company registered with the DIFC Registrar of Companies (DIFC Registered Number 546), with its office at Unit L15 - 01A, ICD Brookfield Place, Dubai International Financial Centre, PO Box 506661, Dubai, UAE, and is regulated by the DFSA to engage in the regulated activities of ‘Advising on Financial Products’ and ‘Arranging Deals in Investments’ in or from the DIFC, both of which are limited to units in a collective investment fund (DFSA Reference Number F000738).

For investors in Abu Dhabi Global Market (ADGM)

The information contained in this document is intended strictly for Authorised Persons.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are forward-looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

For investors in Bahrain

The information contained in this document is intended strictly for sophisticated institutions.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are forward looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

For investors in Dubai (DIFC)

The information contained in this document is intended strictly for Professional Clients as defined under the Dubai Financial Services Authority (DFSA) Conduct of Business (COB) Rules.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are forward-looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

For investors in Israel

BlackRock Investment Management (UK) Limited is not licensed under Israel's Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law), nor does it carry insurance thereunder.

For investors in Kuwait

The information contained in this document is intended strictly for sophisticated institutions that are ‘Professional Clients’ as defined under the Kuwait Capital Markets Law and its Executive Bylaws.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are forward-looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

For investors in Oman

The information contained in this document is intended strictly for sophisticated institutions.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are forward-looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

For investors in Qatar

The information contained in this document is intended strictly for sophisticated institutions.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are forward-looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

For investors in Saudi Arabia

This material is for distribution to Institutional and Qualified Clients (as defined by the Implementing Regulations issued by Capital Market Authority) only and should not be relied upon by any other persons.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are forward looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

For investors in South Africa

Please be advised that BlackRock Investment Management (UK) Limited is an authorised Financial Services provider with the

South African Financial Services Conduct Authority, FSP No. 43288.

For Qualified Investors in Switzerland

This document shall be exclusively made available to, and directed at, qualified investors as defined in Article 10 (3) of the CISA of 23 June 2006, as amended, at the exclusion of qualified investors with an opting-out pursuant to Art. 5 (1) of the Swiss Federal Act on Financial Services (FinSA).

For information on art. 8 / 9 Financial Services Act (FinSA) and on your client segmentation under art. 4 FinSA, please see the following website: www.blackrock.com/finsa.

For investors in United Arab Emirates

The information contained in this document is intended strictly for Professional Investors.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are forward-looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

For investors in China, this material may not be distributed to individuals resident in the People's Republic of China (PRC, for such purposes, not applicable to Hong Kong, Macau and Taiwan) or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services.

For investors in Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. This material is for distribution to Professional Investors (as defined in the Securities and Futures Ordinance (Cap.571 of the laws of Hong Kong) and any rules made under that ordinance.) and should not be relied upon by any other persons or redistributed to retail clients in Hong Kong.

For investors in Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N) for use only with institutional investors as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

For investors in South Korea, this information is issued by BlackRock Investment (Korea) Limited. This material is for distribution to the Qualified Professional Investors (as defined in the Financial Investment Services and Capital Market Act and its sub-regulations) and for information or educational purposes only, and does not constitute investment advice or an offer or solicitation to purchase or sells in any securities or any investment strategies.

For investors in Taiwan, Independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28F., No. 100, Songren Rd., Xinyi Dist., Taipei City 110, Taiwan. Tel: (02)23261600.

For investors in Australia & New Zealand, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230 523 (BIMAL) for the exclusive use of the recipient, who warrants by receipt of this material that they are a wholesale client as defined under the Australian Corporations Act 2001 (Cth) and the New Zealand Financial Advisers Act 2008 respectively.

This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should therefore assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. Refer to BIMAL’s Financial Services Guide on its website for more information. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.

This material is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the issuer of financial products and acts as an investment manager in Australia. BIMAL does not offer financial products to persons in New Zealand who are retail investors (as that term is defined in the Financial Markets Conduct Act 2013 (FMCA)). This material does not constitute or relate to such an offer. To the extent that this material does constitute or relate to such an offer of financial products, the offer is only made to, and capable of acceptance by, persons in New Zealand who are wholesale investors (as that term is defined in the FMCA).

BIMAL, its officers, employees and agents believe that the information in this material and the sources on which it is based (which may be sourced from third parties) are correct as at the date of publication. While every care has been taken in the preparation of this material, no warranty of accuracy or reliability is given and no responsibility for the information is accepted by BIMAL, its officers, employees or agents. Except where contrary to law, BIMAL excludes all liability for this information.

Any investment is subject to investment risk, including delays on the payment of withdrawal proceeds and the loss of income or the principal invested. While any forecasts, estimates and opinions in this material are made on a reasonable basis, actual future results and operations may differ materially from the forecasts, estimates and opinions set out in this material. No guarantee as to the repayment of capital or the performance of any product or rate of return referred to in this material is made by BIMAL or any entity in the BlackRock group of companies.

No part of this material may be reproduced or distributed in any manner without the prior written permission of BIMAL.

For Southeast Asia: This document is issued by BlackRock and is intended for the exclusive use of any recipient who warrants, by receipt of this material, that such recipient is an institutional investors or professional/sophisticated/qualified/accredited/expert investor as such term may apply under the relevant legislations in Southeast Asia (for such purposes, includes only Malaysia, the Philippines, Thailand, Brunei and Indonesia). BlackRock does not hold any regulatory licenses or registrations in Southeast Asia countries listed above, and is therefore not licensed to conduct any regulated business activity under the relevant laws and regulations as they apply to any entity intending to carry on business in Southeast Asia, nor does BlackRock purport to carry on, any regulated activity in any country in Southeast Asia. BlackRock funds, and/or services shall not be offered or sold to any person in any jurisdiction in which such an offer, solicitation, purchase, or sale would be deemed unlawful under the securities laws or any other relevant laws of such jurisdiction(s). This material is provided to the recipient on a strictly confidential basis and is intended for informational or educational purposes only. Nothing in this document, directly or indirectly, represents to you that BlackRock will provide, or is providing BlackRock products or services to the recipient, or is making available, inviting, or offering for subscription or purchase, or invitation to subscribe for or purchase, or sale, of any BlackRock fund, or interests therein. This material neither constitutes an offer to enter into an investment agreement with the recipient of this document, nor is it an invitation to respond to it by making an offer to enter into an investment agreement. The distribution of the information contained herein may be restricted by law and any person who accesses it is required to comply with any such restrictions. By reading this information you confirm that you are aware of the laws in your own jurisdiction regarding the provision and sale of funds and related financial services or products, and you warrant and represent that you will not pass on or utilize the information contained herein in a manner that could constitute a breach of such laws by BlackRock, its affiliates or any other person.

For Other Countries in APAC: This material is provided for your informational purposes only and must not be distributed to any other persons or redistributed. This material is issued for Institutional Investors only (or professional/sophisticated/qualified investors as such term may apply in local jurisdictions) and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, BlackRock funds or any investment strategy nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.

The opinions presented are those of speakers as of the date of this scheduled webcast and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or made investment decisions that may, in certain respects, not be consistent with the information contained in this presentation. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this presentation are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance does not guarantee future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the viewer.

BlackRock, Inc., 50 Hudson Yards, New York, NY 10001.

THIS MATERIAL IS HIGHLY CONFIDENTIAL AND IS NOT TO BE REPRODUCED OR DISTRIBUTED TO PERSONS OTHER THAN THE RECIPIENT.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public. The information contained in this document, may contain statements that are not purely historical in nature but are forward-looking statements. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorized financial adviser.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2024 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its affiliates. All other trademarks are those of their respective owners.

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