The Factor Outlook is a quarterly report that summarizes BlackRock’s forward-looking views on
global equity style factors based on several predictors, including valuations, relative strength, dispersion and economic regime.
Here are some highlights.
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Factors are broad, persistent drivers of return, present both across and within asset classes. Factor investing targets these intuitive investment styles, seeking to take advantage of economic insight, diversification and efficient execution.
Quality, momentum, value, size and minimum volatility have historically been drivers of returns across asset classes. Because they are driven by different economic
rationales, they have tended to outperform at different times. -
By understanding specific inputs that could impact factor performance, investors can
potentially gain a balanced view on the near-term prospects for individual factors
relative to each other. -
Investors should consider maintaining a well-diversified multifactor investment at the core of their portfolio, and making modest over- and underweights to individual factors around that core portfolio. Such an approach takes advantage of the potential diversification benefits and the time-varying nature of factors without tying the portfolio to the performance of any individual factor — allowing investors to seek both the longand short-term potential of factor investing.
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With earnings momentum rising across the world, strong fundamentals continue to power an appealing environment for equities – undeniably with greater volatility than the ultralows seen in 2017. Our economic regime model continues to indicate expansion in the U.S., where economic growth is both robust and accelerating.
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While the level of growth remains strong outside the U.S., potential deceleration in the pace of growth in the Eurozone shifted our global economic regime model into slowdown mode this quarter. The strong run in acceleration that characterized the Eurozone through 2017 and January 2018 turned a corner in late Q1, with weakness highlighted in some of the “faster” leading indicators.
