Blackrock asset research director Andrew Ang shares his economic insights into fundamental factors for global asset management.

Apple Boston

2019-07-29 11:33:00 Mon ET

Blackrock asset research director Andrew Ang shares his economic insights into fundamental factors for global asset management. As Ang indicates in an interview with Ritholtz Wealth Management, fundamental factor investors seek to manage macroeconomic risk to enhance their average returns. Ang focuses on 5 primary factors: size, value, momentum, low volatility, and high quality of profit margins. In addition, Ang oversees a broad basket of assets such as stocks, bonds, currencies, and commodities.

The consistent application of both big data and technology helps scale total assets under management with lower transaction costs. At BlackRock, Ang decomposes his favorite fundamental factors across macro and style factors. The 3 major macro factors are *economic growth, inflation, and the real interest rate*, in accordance with the baseline Taylor interest rate that depicts a highly non-linear Phillips curve. Ang empirically finds that these 3 macroeconomic factors account for 85% of stock market returns. Stock portfolio analysis helps achieve higher average returns (after risk and fee adjustments) when the active fund manager focuses on size, value, momentum, low volatility, and corporate profitability. Moreover, value occasionally becomes more cost-effective relative to its own history, and key momentum returns often cluster together in specific time periods. This factor investment methodology accords with our proprietary alpha investment model that relies on 6 fundamental factors (size, value, momentum, asset growth, operating profitability, and market risk exposure).

 


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