Systematic Investing

By combining the power of big data, data science, and deep human expertise to modernize the way we invest, systematic investing is unlocking new ways to seek consistent portfolio outcomes amidst a world of unpredictability.

What Is Systematic Investing?

In today’s uncertain markets, we all need more targeted investment outcomes.

By combining the power of data-driven insights, investment science, and disciplined portfolio construction to modernize the way we invest, systematic investing is unlocking new ways to seek specific outcomes amidst a world of unpredictability.

Systematic investing begins with data-driven insights.

In the digital age, we have access to vast amounts of data, from traditional sources like company financial statements and economic reports to more complex unstructured sources like company news stories, web traffic, social media sentiment, consumer geo-location data and even satellite imagery.

By harnessing highly sophisticated analytics techniques like machine learning and artificial intelligence, we transform this sea of raw data into useful investment information—providing insights faster, at greater scale, and with more granularity than traditional methods.

Next, we deploy rigorous scientific testing to learn if these investment insights actually have the potential to help forecast future returns.

This process includes a comprehensive examination of empirical evidence by seasoned investment experts—testing different combinations of variables and comparing the results to known outcomes. This ability to validate insights means portfolio decisions are firmly evidence-based on not dependent on human conviction alone.

Finally, when an insight is shown to be valuable, we employ a disciplined portfolio construction process to implement it. Our investment experts use computers to model the many complex trade-offs involved—finding a balance between expected return, risk, correlation, and cost—to guide any allocation decisions.

At every step, the systematic process is designed to help deliver more targeted investment outcomes.

Whether it’s seeking risk-managed growth through equities… generating income and maintaining ballast with bonds… or accessing new sources of diversification and return with alternative strategies…

Systematic investing is unlocking new ways to navigate a world of uncertainty.

What is systematic investing?

Systematic investing, often called quantitative investing, is an investment approach that emphasizes data-driven insights, scientific testing of investment ideas, and advanced computer modelling techniques to construct portfolios.

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Investing, evolved

Human x machine
Innovative investment insights are validated through rigorous quantitative testing—amplifying the decision-making of our investment experts.

Engineered for scale
Technology-driven process helps scale investment insights across vast sets of securities, enabling high-breadth portfolios for equities, fixed income, and alternatives.

Targeted outcomes
Systematic tools help our investors balance complex risk and return trade-offs with precision—targeting the investment outcomes that you expect.

There is no guarantee that research capabilities will contribute to a positive investment outcome.

Systematic Investment Process Video Script

Systematic investment process [Title card]

The world is more data-driven than ever before. Our systematic process leverages vast sets of data, both traditional and alternative, to provide investment insights faster, at greater scale and with more granularity. We score and rank thousands of securities daily to help make investment decisions in real time, based on company fundamentals, market sentiment and macroeconomic themes.

Our fundamental signals perform the same analysis a traditional security analyst might. Our models leverage data and technology to systematically evaluate thousands of securities. Using alternative data, such as internet search, transaction activity, and geolocation data, we score the attractiveness of investment opportunities against more traditional accounting measures.

Our sentiment signals recognize factors other than fundamental strength can influence returns over shorter time frames. Sentiment signals analyze a broad range of market views from sell side ¹analysts, company management, and other investors. Electronic text forms a large part of the underlying data that drives these insights and seeks to enable our models to identify where analysts and management are more positive (or negative) on a company’s outlook.
Our macroeconomic signals seek to form a view across groups of securities rather than individual companies. For example, we analyze the impact of positive hiring trends or adverse inflationary pressures across a universe of securities. We evaluate the impact of macroeconomic data among countries, industries, and equity styles, such as value and growth.

The final score for every security is a weighted combination of all signals, blending the views across these insights.

The final “alpha” score represents our assessment of the return potential of each security relative to all the others within the investible universe.

Portfolio Construction [Title Card]

Our investment process² seeks to systematically capture the drivers of future returns, to create a portfolio that seeks to maximizes exposure to our signal views. We construct portfolios starting with these final alpha scores and size positions aligned with these scores. A market neutral portfolio would hold a long position³ in securities with a positive score, and a short position⁴ in securities with a negative score.

However, this doesn’t tell us anything about risk and implementation frictions such as transaction costs and constraints. To account for this, we take into consideration the expected return of a position, alongside an assessment of its potential risk using a multi-factor risk model.

Whether the portfolio being generated is a market neutral hedge fund designed to deliver an uncorrelated source of alpha, or a long only portfolio seeking to outperform a broad index of market exposure, the process is identical. The final output is intended to capture the broadest possible opportunity set within the target market, as we seek to achieve the best possible tradeoff between risk and return net of transaction costs.

[DISCLAIMERS]

There is no guarantee that a positive investment outcome will be achieved.

While the investment approach described herein seeks to manage risk, risk cannot be eliminated.

For investors in Italy: This document is marketing material. Before investing please read the Prospectus and the PRIIPs KID available on www.blackrock.com/it, which contain a summary of investors’ rights.

Risk Warnings

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.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

This material is prepared by BlackRock and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date shown above and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. This material is intended for information purposes only and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, BlackRock funds or any investment strategy nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Investment involves risks. Past performance is not an indication for the future performance.

In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

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In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

In South Korea,

this information is issued by BlackRock Investment Management (Korea) Limited. This material and the BlackRock website (www.blackrock.com/kr) have not been reviewed by the Financial Supervisory Service in Korea.

In Australia, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL). The material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances.

Before making any investment decision, you should assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. Refer to BIMAL’s Financial Services Guide on its website for more information. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

Prepared by BlackRock Investments, LLC. Member FINRA.

¹ Sell side: refers to a portion of the financial industry that issues, sells, or trades securities in the public market.

² Source: BlackRock, 2024. Investment process is subject to change and is provided here for illustrative purposes

³ Long position: A long position refers to the purchase of an asset with the expectation that its value will increase over time.

⁴ Short position: A short position refers to borrowing a security, selling it, then buying it back later at a lower price to return to the broker and keep the difference.

“

As investment processes become more efficient at absorbing and leveraging information in real time, building systems that can scale and multiply the value of these insights will provide a significant investment advantage.

Raffaele Savi
Global Head of BlackRock Systematic

Deep expertise, vast scale, alternative insights

$304

Billion AUM across equities, fixed income, and alternatives

300

+ Unstructured data sources utilized

35

+ Year track record of innovation in systematic investing

700

+ Alpha signals helping to drive investment insights

220

+ People including investment experts and technologists

45

+ Global developed and emerging markets covered

BlackRock Systematic, as of 10/25/2024. For illustrative purposes only.

Systematic Chart of the Month

Potential changes in US policy, including the escalation of tariffs, have drawn increased attention in recent weeks. While the magnitude and timing remain unclear, estimates suggest that the proposed tariffs could be five times greater than the ~$113 billion implemented in 2018. The first chart shows how trade policy uncertainty (as measured by the Fed’s TPU Index) has risen to levels not observed since the unprecedented highs of 2018/19.

What could this mean for stocks? We identify company exposure to tariffs using a large language model supplemented with conference call transcripts starting in 2018 when management commentary around tariffs surged (second chart). The third chart highlights the business impact of tariffs across global equities based on our text analysis, revealing increasingly negative sentiment over the period. We find that firms with complex global supply chains, manufacturing abroad, and significant US revenue exposure are most vulnerable to tariffs, including certain companies within consumer cyclicals, autos, and industrials. Within the subset of companies selling in the US, further analysis suggests those with manufacturing presence in the US are relative beneficiaries.

Explore systematic strategies

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To obtain more information on the funds, including the Morningstar time period ratings and standardized average annual total returns as of the most recent calendar quarter and current month-end, please visit:

Systematic Multi-Strategy Fund
Global Equity Market Neutral

The Morningstar Rating^TM for funds, or "star rating," is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.iShares.com or www.blackrock.com.

Build better bond portfolios

BlackRock’s Advantage Series bond fund seeks a combination of income and capital growth through an investment process that validates fundamentally-oriented insights with quantitative research. Our factor-based bond funds use time-tested factor insights to seek superior risk-adjusted and total return

Tab 1

To obtain more information on the funds, including the Morningstar time period ratings and standardized average annual total returns as of the most recent calendar quarter and current month-end, please visit:

CoreAlpha Bond Fund
iShares Investment Grade Bond Factor ETF
iShares High Yield Bond Factor ETF
iShares Fallen Angels USD Bond ETF

The Morningstar Rating^TM for funds, or "star rating," is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.iShares.com or www.blackrock.com.

Seek risk-managed growth at a low cost

Managed through a technologically-driven investment process, the BlackRock Advantage Series of equity mutual funds can help seek risk-managed growth at a low cost.

On-screen question: How do you maintain an alpha edge in markets?

Simply put, deep human expertise and cutting-edge technology.

We live in an increasingly digital world. When you look at all the data available, 90% of it has been generated over the last two years. [Source: Dihuni, data as of April 10 2020]

This is everything from wi-fi beacons to credit card purchases, to online activities.

While a single data point might not be interesting, in aggregate, it starts to tell a story.

We utilize diverse market expertise and data-driven investment process to separate potentially valuable signals from the noise. This leads to potentially innovative insights that seek to forecast trends and help make active moves ahead of the pack.

On-screen question: How do you maintain an alpha edge in markets?

Simply put, deep human expertise and cutting-edge technology.

We live in an increasingly digital world. When you look at all the data available, 90% of it has been generated over the last two years. [Source: Dihuni, data as of April 10 2020]

This is everything from wi-fi beacons to credit card purchases, to online activities.

While a single data point might not be interesting, in aggregate, it starts to tell a story.

We utilize diverse market expertise and data-driven investment process to separate potentially valuable signals from the noise. This leads to potentially innovative insights that seek to forecast trends and help make active moves ahead of the pack.

To obtain more information on the funds, including the Morningstar time period ratings and standardized average annual total returns as of the most recent calendar quarter and current month-end, please visit:

Advantage Large Cap Core Fund
Advantage Small Cap Core Fund
Advantage International Fund

The Morningstar Rating^TM for funds, or "star rating," is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.iShares.com or www.blackrock.com.

Seeking outcomes with active ETFs

Our systematic ETFs are designed to target thematic positioning and target specific exposures to deliver more precise outcomes. Through systematic stock selection and option-based strategies, we can better capture the exposures clients seek and effectively balance the tradeoffs between risk and return.

Raffaele Savi

Global Head of BlackRock Systematic and Co-CIO and Co-Head of Systematic Active Equity]

After a decade of near zero interest rates, investors are rethinking the tradeoffs between generating income and investing for long-term growth. BlackRock Systematic has developed a combination of stock selection strategies and option-based strategies that optimize this very tradeoff.

[on screen: BlackRock Advantage Large Cap Income ETF]

The BlackRock Advantage Large Cap Income ETF (aka BALI) provides investors with choices, aligning long-term goals with the dual aim of income generation and market participation. BALI seeks to enhance income through dividends, manages equity risk for downside resiliency and provides exposure to a defensive equity portfolio for continued potential market growth.

[on screen: “Why BALI?”]”]

[split screen and show the list of benefits as the narrator speaks about them. “Enhanced income”]

BALI targets enhanced income by deploying a dividend rotation strategy in combination with an option writing premium strategy. The fund invests in U.S. large cap stocks, while writing call options on the S&P 500 Index in an attempt to deliver a consistent monthly dividend.

[on screen: “Market participation”]

The fund’s active stock selection seeks to capture large cap equity growth, while focusing on quality to help mitigate downside risk in the portfolio. BALI is managed by the BlackRock Systematic equity team, which seeks to uncover insights faster, at greater scale, and with more precision using data and machine learning.

[on screen: “Experienced team”]

The team has managed systematic portfolios for over 35 years and has over a decade of experience managing global equity income strategies. BlackRock Systematic manages over $5B in dedicated equity income strategies and our broader systematic platform is comprised of over $223B of assets under management from clients around the entire world.

To learn more about how BALI can help investors like you navigate the current market environment, please visit BlackRock.com/BALI.

[Closing music]

Disclosures

Real yield historical data provided by Bloomberg, as of August 31, 2023.

The BlackRock Systematic team data is provided by BlackRock as of August 31, 2023.

Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses, or, if available the summary prospectus, which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

The Fund is actively managed and does not seek to replicate the performance of a specified index. The Fund may have a higher portfolio turnover than funds that seek to replicate the performance of an index. When the Fund sells call options on a large cap equity index, it receives a premium but it takes on the risk that these options may reduce any profit from increases in the market value of the long equity positions held by the Fund. Any such reduction in profits would be the difference between the payoff of the call option and the premium received. The Fund would also retain the risk of loss if the long equity positions decline in value. The premiums received from the options may not be sufficient to offset any losses sustained from the long equity positions. Factors that may influence the value of the options generally include the underlying asset’s price, interest rates, dividends, the actual and implied volatility levels of the underlying asset’s price, and the remaining time until the options expire, among others. The value of the options written by the Fund typically do not increase or decrease at the same rate as the underlying asset’s price on a day-today basis due to these factors.

A fund's use of derivatives may reduce a fund's returns and/or increase volatility and subject the fund to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation. A fund could suffer losses related to its derivative positions because of a possible lack of liquidity in the secondary market and as a result of unanticipated market movements, which losses are potentially unlimited. There is no guarantee that any fund will pay dividends.

There can be no assurance that any fund’s hedging transactions will be effective. This material is provided for educational purposes only and is not intended to constitute investment advice or an investment recommendation within the meaning of federal, state or local law. You are solely responsible for evaluating and acting upon the education and information contained in this material. BlackRock will not be liable for direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. BlackRock does not render any legal, tax or accounting advice and the education and information contained in this material should not be construed as such. Please consult with a qualified professional for these types of advice.

©2023 BlackRock, Inc. or its affiliates. All Rights Reserved. BLACKROCK and iSHARES is a trademark of BlackRock, Inc. or its affiliates. All other trademarks are those of their respective owners.