What is factor investing?

Factor investing is an investment approach that involves targeting specific drivers of return across asset classes. There are two main types of factors: macroeconomic and style. Investing in factors can help improve portfolio outcomes, reduce volatility and enhance diversification.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Introduction to factors

Factors are the foundation of investing—broad, persistent drivers of returns across asset classes. Understand how factors work to better capture their potential for excess return and reduced risk, just as leading investors have done for decades.

Learn how factors can help us build portfolios better suited to individual needs, and seek goals such as generating returns, improving risk and enhancing diversification.

Types of factors

There are two main types of factors that have driven returns:

  • Macroeconomic factors: Capture broad risks across asset classes.
  • Style factors: Help to explain returns and risk within asset classes.

Types of Factors

The growth of
factor-based strategies

The factor industry is estimated to grow to $3.4 trillion by 2022.

the growth of factor-based strategies

All amounts given in USD.

Source: BlackRock, Simfund for mutual fund data, BlackRock for ETF data, eVestment and Preqin for institutional and alternative data. Mutual fund and ETF data as of 31/12/17, eVestment and Preqin as of 30/09/17. Excludes fund of funds. Projections exclude the impact of beta.

Factor Investing. There can be no assurance that performance will be enhanced or risk will be reduced for strategies that seek to provide exposure to certain quantitative investment characteristics ("factors"). Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. In such circumstances, a strategy may seek to maintain exposure to the targeted investment factors and not adjust to target different factors, which could result in losses.

Seek targeted outcomes with factors

BlackRock offers a range of solutions designed to tap into the potential of factors – from low-cost, efficient iShares ETFs to dynamically managed enhanced factor strategies. View our full suite of products

What is factor rotation?

Factor rotation seeks outperformance through the dynamic use of style factors. This approach is highly complementary to traditional index and alpha-seeking strategies, delivering two potential sources of return: the long-run premium associated with a diversified portfolio of broad and persistent style factors and the incremental return from factor tilting.