Desire for Improved Returns, Enhanced Risk Management and Transparent
Portfolio Construction Driving Demand
NEW YORK & LONDON & HONG KONG & TORONTO--(BUSINESS WIRE)--
Institutional investors are increasingly employing factor-based
strategies across their investment process, a new study conducted by The
Economist Intelligence Unit and sponsored by BlackRock has revealed.
Respondents believe factors can help them deliver long-term
outperformance, decrease overall portfolio risk, increase transparency
in portfolio construction, and better understand past and future drivers
of return.
Supported by years of academic research, factor investing holds that the
risks and returns of all investments, no matter how nominally diverse,
can be mapped to a common set of underlying factors. The idea of factors
is to distill investments into something very simple: macro-economic
factors such as economic growth, inflation and interest rates, and style
factors like value, quality, momentum and volatility.
The global survey was conducted among 200 institutional investors
representing $5.5 trillion in assets under management and found factor
use is widespread and on the rise. More than 85% of respondents utilize
factors in some part of the investment process. Close to two-thirds of
the institutions surveyed stated that they had increased their usage of
factors over the past three years. The trend is expected to continue,
with 60% of respondents indicating they plan to increase their use of
factors over the next three years. The desire to improve returns is the
most important motivation for increasing factor use.
“As is often the case, adversity has given rise to innovation. The
unexpected correlations of asset performance during the financial crisis
spurred investors to better understand underlying risks. This has
resulted in a growing interest in factor strategies,” said Mark McCombe,
Global Head of BlackRock's Institutional Client Business. “Following an
initial focus on risk management, investors increasingly believe that
factor strategies can drive enhanced performance.”
For new factor users, a better understanding of risk exposures is the
top motivation: more than three-quarters (76%) of factor users cited the
desire for a better understanding of risk and return as a motivation,
and the same percentage said they had achieved this goal. More than half
(59%) have achieved greater diversification (the second most-cited
motivation), and similar proportions have lowered risk (56%) and
increased returns (55%).
Macro and style factors are employed in both risk management and
investment strategies. More than half (53%) of the institutions surveyed
use investment strategies targeting one or more factors with value being
the most commonly targeted style factor and inflation being the most
commonly used macro factor. Equity factor strategies (e.g. smart beta)
are most widespread, used by 68% of investors, but more advanced
long/short multi-asset strategies are also widely used, utilized by 57%
of those who invest in factors.
Institutions are taking a number of steps to support future factor use.
More than two-thirds of those increasing over the next three years will
ensure they have appropriate risk management systems. More than half
expect to seek advice from asset managers, while 37% expect to hire
additional staff. Half of those increasing say they will make an initial
allocation to an investment strategy to monitor performance.
“Having worked with several of the early adopters, seeing the increasing
acceptance of factors by institutional investors is particularly
gratifying,” said Andrew Ang, Head of Factor-Based Investing Strategies
at BlackRock. “The research echoes my experiences with clients. The
broad and growing number of institutional investors adopting
factor-based investing reflects the benefits and versatility of the
approach. Those reasons are why we are so confident in the outlook for
factor investing.”
About the survey
In January 2016, The Economist Intelligence Unit, on behalf of
BlackRock, conducted a global survey of 200 executives from
institutional investment organizations in 20 countries to understand how
they are utilizing factors and factor-based investing.
In terms of geographic distribution, 90 respondents were located in the
Americas, 70 in Europe, the Middle East and Africa, and 40 in
Asia-Pacific. Approximately one-third of the organizations represented
in the survey have assets under management (AUM) of more than $25bn,
one-third have AUM between $10bn and $25bn, and one-third have AUM
between $1bn and $10bn.
About BlackRock
BlackRock is a global leader in investment management, risk management
and advisory services for institutional and retail clients. At December
31, 2015, BlackRock’s AUM was $4.645 trillion. BlackRock helps clients
around the world meet their goals and overcome challenges with a range
of products that include separate accounts, mutual funds, iShares®
(exchange-traded funds), and other pooled investment vehicles. BlackRock
also offers risk management, advisory and enterprise investment system
services to a broad base of institutional investors through BlackRock
Solutions®. As of December 31, 2015, the firm had approximately 13,000
employees in more than 30 countries and a major presence in global
markets, including North and South America, Europe, Asia, Australia and
the Middle East and Africa. For additional information, please visit the
Company’s website at www.blackrock.com
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GMC-0156
View source version on businesswire.com: http://www.businesswire.com/news/home/20160406005956/en/
BlackRock
Olivia Offner, 646-231-0137
Olivia.Offner@BlackRock.com
Source: BlackRock