224. Systematic Investing: The Role of Consistent Alpha in Volatile Markets
The global investment environment is full of uncertainty — from inflation, growth dynamics, to policy shifts and geopolitical tensions. Investors are seeking clarity and ways to unlock more consistent investment outcomes during a period of unpredictable conditions. Innovations in data analytics and technology are helping investors better understand markets not just in during turbulent times, but in everyday decision making. But is AI the answer to consistent investment performance, and how can human judgment have the potential to create more resilient investment results? Enter systematic investing, that blends human insight and machine learning to pursue consistent alpha in volatile markets through disciplined processes, alternative data, and continuous innovation.
Ronald Kahn, Global Head of Systematic Investment Research at BlackRock, has played a foundational role in shaping the field of quantitative investing over the past few decades. He joins host Oscar Pulido to talk about what it means to pursue consistent alpha in today’s markets, how data and technology have evolved investors' expectations and how systematic investing continues to deliver potential in uncertain conditions.
Check out the full series covering tariffs and market volatility on The Bid: https://open.spotify.com/playlist/3iiZbbNz3eI08zXGZ4n3LI?si=TNiOrYRoSxyXVsbwsBs68Q
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systematic investing, systematic investment, consistent alpha, alpha investing, outperforming the market, investing opportunities, active manager, ETFs active ETFs
Sources: Referencing BlackRock Systematic signal library as of June 2025; Systematic Market-Aware Alpha Opportunities BlackRock, February 2023; Q2 Global Equity Outlook BlackRock, May 2025
Written disclosures in each podcast platform and each episode description:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.
Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.
For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures
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Oscar Pulido: The global investment environment is full of uncertainty. Investors are seeking clarity and ways to unlock more consistent investment outcomes. During a period of unpredictable conditions, innovations in data analytics and technology are helping investors better understand markets. But is AI the answer to consistent investment performance? And how can human judgment have the potential to create more resilient and investment results?
Ron Kahn: There are these things that come up where humans have to be much more involved and humans can really add a lot, we need humans, we need machines, but this idea of cutting through the noise and figuring out how to optimally blend all these ideas together, in general, machines are really good at that.
Oscar Pulido: Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.
Coming up on The Bid, I'm joined by Ronald Kahn, global Head of Systematic Investment Research at BlackRock. Ron has played a foundational role in shaping the field of quantitative investing over the past few decades. He'll talk about what it means to pursue consistent alpha in today's markets, how data and technology have evolved investors' expectations, how systematic investing continues to deliver potential in uncertain conditions.
Ron, thank you so much for joining us on The Bid.
Ron Kahn: It's great to be here, Oscar.
Oscar Pulido: Ron, you and I haven't spoken yet on The Bid, but we have had some of your colleagues from the systematic investing business who have joined us in the past. I'm thinking of people like Brad Bets and Jeff Shen who have, come and talked to us about how they use data to understand. Market complexity.
Of course, this is a topic that you have been tackling for a few decades. In fact, you quite literally, helped write the book on systematic, investing, many years ago. And so, it's great to talk to you about it. Looking at the current environment, all the uncertainty and the volatility that we see, how do you think about the pursuit of consistent alpha. And why is that goal so important for so many investors?
Ron Kahn: Oscar, you've actually focused on the central issue for investors generally. How do we deliver consistent, positive alpha in a world that's full of volatility and where ideas work for a while and then they stop working? The only way to do that, the only way we know how to do that is through constant innovation.
We've got to constantly be coming up with new ideas to replace the old ideas that stop working. Active management is a very competitive industry, and we find ideas that give us some edge that the market hasn't quite figured out yet, but the market always figures it out. And so, we've got to keep looking for new ideas and replace the old ideas with new ones.
That's how we try to deliver consistent alpha. and I would add, we've been doing this for 40 years now, and we've learned a lot over that time. And the way we add value these days is all through informational advantages, which I was alluding to a second ago that we try to figure out things that help drive returns, but that the market hasn't figured out yet.
That's why we use all of this data, AI, machine learning and everything, it's all to try to maintain these small edges and deliver the consistent performance.
Oscar Pulido: You mentioned, all of this data, in fact it is a lot of data. It has evolved a lot over the years as well. In fact, one of the terms I think that you and your team often use is alternative data. So, talk to us a little bit about how has the use of that data changed over time and, maybe you can give us some like real world examples of how that feeds into the investment decision making process.
Ron Kahn: So, I'll give you a couple of examples. And the first one is about understanding individual stocks. What alternative data allows us to do is to move upstream of companies having earnings conference calls or issuing earnings. So, at that point, you know exactly what the company has earned over the last quarter.
What I mean by upstream is we can keep track of exactly how many people are walking into every restaurant and every retail store every single day. Now, we don't know what stores you're walking into or what restaurants you're going into, it's aggregated data. we're not interested in what individuals are doing.
But what we found is it's not as good as knowing the actual earnings. If we see more people walking into a particular store week after week, that does do a pretty good job of predicting that earnings are going up. And so, it's alternative in that it's not how people used to think about things. It's also very, much driven by advances in technology. How are we able to do this? If you happen to be carrying a cell phone, which is true, going to be true of pretty much everyone in the world these days, your cell phone is always looking for Wi-Fi connections. That's how when you walk into a store, it registers there's another phone. I'll tell you a funny story about these types of data. We were doing a pitch for client, and we had a live demo. And we were talking about a large fast-food company. Someone in the meeting said, oh, there's one of those like two blocks from our office, what do you see there? So, we zoom in on that and we're going like, oh, that's interesting that the foot traffic has gone down a lot in the past three months. And he says. Oh, that makes total sense. There's a big construction project in front of that building, and it's not even obvious that the restaurant is still open.
So, there's an interesting granularity that we can see, but it's really when we aggregate it up, we can say, alright, at the company level, what's going on with earnings.
So as another example, focused on, macroeconomic trends, we're interested in, economic growth in countries all over the world, what we've discovered is we can use satellite imagery to measure the amount of truck activity in every particular country. That allows us to have an independent measure, so we're not dependent on the governments for those numbers. This gives us a macroeconomic view and an independent view that's useful in determining what are the more attractive countries to invest in.
Oscar Pulido: So, it's interesting when you're talking about data, it sounds like it can be used both from a macro perspective, understand the economic growth in a particular country. But you also mentioned looking at foot traffic going into a restaurant. I think you said ‘moving upstream’ which I interpreted as trying to get a little bit of insight into what earnings might be for a company going forward and using data to help inform that.
Ron, when we've talked to some of your colleagues in the past, and we talk about all of this data, we also talk about the technology, the infrastructure that is needed. Maybe talk a little bit about, what you have seen over your many decades in the industry when it comes to the technology.
Ron Kahn: Particularly, systematic investing is a technologically intensive business. I'll tell you one thing that, people don't appreciate in this world of alternative data. We still look at, earnings, conference calls and financial statements. If you look at a financial statement, you know the company they're talking about, it's listed right in the front. There's usually a ticker you can see, and so you can connect the earnings to a lot of other data. In the world of alternative data, often we might be looking at things like, product reviews for different products, we might collect product reviews about the latest iPhone. The iPhone's a simple example, we know what the company is. But there are millions of products, and so the ability to just map, here's a set of data, what company does it refer to? That's required a years’ long effort to build out all of the connections between companies, the names of their products, the types of things that people might say about them.
Another example is we generally, how do we keep track of all these data? they're really voluminous and they're not the type of data that would fit well into a spreadsheet. So, we've had to develop different structures so that we can efficiently keep track of data.
Oscar Pulido: Ron, there's some other terminology in this space as well. Often, we hear the word signals used when it comes to systematic investing. what are examples of signals, that have worked in more challenging or unprecedented periods of time and what have they revealed about the economy or perhaps about companies.
Ron Kahn: Yes, that gets at something that's very interesting to us and we've put a lot of effort into over recent years, which is How do we predict stocks or understand movements of stocks, in unprecedented periods? I'll give you two examples.
So one, if you go back to the COVID period, here we're living through a global pandemic. It's fair to say that almost nobody, almost no investor has ever lived through this before. So, on the one hand, it seems hugely impactful, and on the other hand, we have no data. we don't have people on the team who lived through the Spanish flu epidemic in 1917.
And so, what do we do? we've got so much alternative data, so one thing we did, a hypothesis that as vaccines were developed, they were rolled out in different countries at different times, and our view was that as the vaccine is rolled out, mobility will increase. People will start walking around, they'll buy more things or different things. They'll go into stores, they'll go into restaurants, we both have this hypothesis that this is connected to vaccine rollouts and at the same time we have data that tells us how mobility is changing. And so, we put that all together the economy's restarting as vaccines rolled out.
Let me give you a more recent example. There's been a lot of talk and action in the US around tariffs, and we looked at how individual companies were going to be exposed to tariffs, were they bringing materials in from other countries? Were they exporting? and the systematic infrastructure allows us to answer questions like, how would a hypothetical tariff impact every single company, and we use this to put together trade baskets, stocks that will benefit, stocks that won't be hurt, and we can overlay that on other things we do to protect ourselves when the tariffs were announced. And even now there's a lot of volatility, around tariffs. We continue to monitor all this.
Oscar Pulido: It certainly seems as if the world gets more complex, having more data is powerful. I don't know about you Ron, but in my own personal life when I have to make a decision, sometimes when I'm presented with more information, it can be a bit overwhelming. So, If I take that now to the investment decision making process, how do you manage that? How do you make sure that, with all the data at your disposal, that you cut through the noise and you focus on what really matters in order to generate that consistent alpha that we talked about at the very beginning? I.
Ron Kahn: Oscar, you're, what you're raising is a very human concern I sometimes say if you looked around a BlackRock office and You say how many people in the office can juggle three balls? And you'd probably find a number of people who could. If you ask how many people can juggle eight balls, no one there - those people are in Cirque de Soleil. And so, you very quickly go from something that humans can do to humans can't do. And in the world of signals and data, when we started out, we had five different signals - five ideas - and the humans decided how much weight to put on each of those. Nowadays, if we have a thousand signals, humans can't do this. And so, we use AI and machine learning to come up with the optimal blend of all these ideas. Machines are much better at this than humans and we have seen is that eight years out of 10, the machines will do much better than the humans.
There are these things that come up where humans have to be much more involved and humans can really add a lot, and so we want both of those things. It's like airplanes most of the time what people tell me is that the autopilot is actually better than the human pilots. But every once in a while, the plane runs into a flock of geese, and you want Sully Sullenberger in the cockpit to figure out what to do because that wasn't in the data.
We need humans, we need machines. But this idea of cutting through the noise and figuring out how to optimally blend all these ideas together in general, machines are really good at that.
Oscar Pulido: And Ron, you're talking about humans and the role that they play in the systematic investing process. I think it's fair to say that sometimes one of the, perhaps, misconceptions about this field is that it's all about algorithms and you've mentioned AI and you've mentioned machine learning, and it can feel like it is really just a lot of technology working in the background. But humans do play an important role. You started talking a little bit about this, but tell us a little bit more about where does the creativity and the human insight factor into the systematic process?
Ron Kahn: So, humans are involved in every single step, obviously. So even if you think about, the technological systems that we've built, it's all humans who built those or conceived of them and understood how to design them, how they would work. I've mentioned we have on the order of a thousand signals; we've developed these over 40 years where humans have worked on for two to three months to develop each one of those signals. It's really a multi-decade effort with a lot of human input. I gave you the examples of things we did during the pandemic, things we've done around tariff policy, there's a lot of evidence that at least the current state of the art with technology, humans plus machines will outperform humans by themselves or machines by themselves. That's the world we're living in today. And so, we need both.
Oscar Pulido: It sounds like one plus one, would equal three in that case, where you have, humans and machines making each other better. Speaking of humans for most of the investors who listen to The Bid, as they're hearing you talk, they might be thinking, well, I don't have access to all this data, all this technology, all this machine learning. So, what lessons should they take from the approach that you and your team have been implementing for many years?
Ron Kahn: At the heart of our approach is really a lot of discipline and process. All successful investing turns out to be around discipline and process. And so, I think that's something that everyone should think about. And when I think about process, in the world of BlackRock Systematic process is very quantitative. You can have a process that is just, a set of things you always do, and you want to be disciplined about following that. It doesn't have to be quantitative.
I would say couple of other things. One is our discipline process. we take risks in proportion to the potential opportunity. These things are going to be a little bit more abstract, thinking about where are the opportunities and focusing on those, we can do this over thousands of opportunities. Individual investors can still choose managers and, you can look at where do you think there are more opportunities?
Is it in equities? Is it in fixed income? Is it private credit? Is it in the US or international? So, there are things that, that, individual investors can think about. And the last thing is the insight that successful investing requires two things. We've got to have skill every time we make an investment decision, and then we've got to diversify across lots and lots of investment decisions. And so, when you look at the systematic approach to investing, it's got to have both of those things. We've got to have good investment decisions and then we've got to diversify across those decisions and that can apply to individual investors just as well.
Oscar Pulido: Ron, when I spoke to Brad Betts last year I recounted to him a quote that I have seen up on the wall with your name attributed to it, because if I'm not mistaken it's the first sentence in the book, that you wrote, which is, The art of investing...
Ron Kahn: .. Is becoming the science of investing.
Oscar Pulido: Ron, and you have taken us, down a history lesson of the science behind, systematic investing and put it in some real-world examples of how it can benefit our investors, we appreciate you doing that, with us here and for joining us on The Bid.
Ron Kahn: Great. Thank you, Oscar. It's great to be here.
Oscar Pulido: Thanks for listening to this episode of The Bid. Next week we turn our focus to retirement savings and what new legislation means for your retirement account. Subscribe to The Bid and don't miss the episode.
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Spoken disclosures at end of each episode:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.
For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures
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