Multi-factor investing is a strategy that screens stocks for key characteristics or ‘factors’ such as – value, quality, momentum, minimum volatility and size – that drive long-term performance in equity markets. Advances in technology have given investors additional ways to systematically identify stocks that possess these factors and the ability to construct an optimised portfolio with diversified exposure to each factor.
iShares ETFs cover a broad range of asset classes, risk profiles and investment outcomes. To understand the appropriateness of this fund for your investment objective, please visit our product webpage.
iShares ETFs cover a broad range of asset classes, risk profiles and investment outcomes. To understand the appropriateness of this fund for your investment objective, please visit our product webpage.
Find out more about iShares World Equity Factor ETF (WDMF)
https://www.blackrock.com/au/products/284665/
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Find out more about iShares Edge MSCI Australia Multifactor ETF
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Multi-factor investing focuses on each of the factors that have historically driven outperformance – value, quality, momentum, size and minimum volatility1. Each of these factors are supported by decades of economic theory, including six Nobel prizes.2
While each of the five factors on their own tends to outperform in a given set of market conditions – see chart below – taking a multi-factor approach can help to smooth out the performance highs and lows of individual factors.
Where factors tend to outperform in the economic cycle
BlackRock. For illustrative purposes only
Because of its potential to perform across the full market cycle, many investors tend to leverage a multi-factor strategy to mitigate long periods of underperformance from each individual factor and enhance risk-adjusted returns.
For this reason, multi-factor strategies may be worth considering for investors looking for more stability through all market cycles, and potentially enhanced returns for their core equity holdings. For those looking to take a long-term strategic view on equity markets – rather than the tactical positioning of single factor strategies – the combination of multiple factors can help soften the effect of drawdowns and increase potential for outperformance.
Example of how a multi-factor strategy represented by the STOXX Developed World Equity Factor Index can enhance returns compared to a broad developed market equity allocation over time:
STOXX, data as of March 29, 2024. Net returns in AUD.
Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.
1 MSCI Australia IMI Diversified Multiple Factor (AUD) Index (AUMF) targets four factors in Australian equities exposure: quality, value, size and momentum. While the STOXX Developed World Equity Factor Index (WDMF) targets five factors value, quality, momentum, size and low volatility.
2 Source: Andrew Ang, ‘Factor ETFs and the evolution of investment’. https://www.blackrock.com/au/individual/insights/factor-etfs-and-the-evolution-of-investment
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