Pursue investment outcomes with factors

The ideas behind factors aren’t new. But their use is being enhanced by data and technology.

What are factors?

Factors are the foundation of portfolios—the broad, persistent forces that have driven returns of stocks, bonds and other assets. Factor investing leverages advancements in today’s data and technology to deliberately seek these historical return drivers in portfolios. Understanding how factors work can help you capture their potential for excess return and reduced risk, just as leading institutional investors and active fund managers have done for decades.

Types of factors

There are two main types of factors that have driven returns: macroeconomic factors, which capture broad risks across asset classes; and style factors, which help to explain returns and risk within asset classes.

Macroeconomic factors

Economic growth
Economic growth
Exposure to the business cycle
Real rates
Real rates
The risk of interest-rate movements
Inflation
Inflation
Exposure to changes in prices
Credit
Credit
Default risk from lending to companies
Emerging markets
Emerging markets
Political and sovereign risks
Liquidity
Liquidity
Holding illiquid assets

Style factors

Value
Value
Stocks discounted relative to their fundamentals
Minimum volatility
Minimum volatility
Stable, lower-risk stocks
Momentum
Momentum
Stocks with upward price trends
Quality
Quality
Financially healthy companies
Size
Size
Smaller, high-growth companies
Carry
Carry
Income incentive to hold riskier securities

 

Factors have generally had low correlations with each other and therefore tended to perform well at different parts of the economic cycle. Use our interactive tool to see how different factors have performed through market shocks, expansions and contractions over the long term.

Factor performance tool

 

Why invest in factors

Institutional investors and active managers have been using factors to manage portfolios for decades. Today, data and technology have democratized factor investing to give all investors access to these historically persistent drivers of return.

“

Factor investing is the way of the future. It’s about empowering investors to deliberately and directly access ideas to help achieve their financial goals.

”
— Andrew Ang, Ph.D.
Head of Factor-Based Strategies

Factors can help meet portfolio objectives

Seek to outperform
Seek to outperform
Certain single- or multifactor strategies can help provide above-market returns.
Manage risk
Manage risk
Minimum volatility strategies aim for below-market risk.
Enhance diversification
Enhance diversification
Allocating across macro factors enables investors to seek greater portfolio diversification.

How to access factors

BlackRock offers a range of solutions designed to tap into the potential of factors – from low-cost, efficient smart beta ETFs to dynamically managed and enhanced factor strategies.

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