Sep 14, 2021 Factors
Smart beta strategies typically capture factor exposures using systematic, rules-based approaches, such as an index. ETFs, popular vehicles for rules-based strategies, are cost effective ways to access smart beta strategies.
As ETFs, smart beta strategies can be efficient and low cost ways to complement or replace active funds and broad market index funds when seeking to enhance a portfolio’s returns and diversification or to reduce risk.
Smart beta strategies seek to outperform traditionally weighted index funds, or enhance a portfolio in other ways, such as reducing vulnerability to stock market volatility. These strategies may also provide outperformance relative to traditional active mutual funds.
Smart beta can help improve your ability to align results with your preferences around risk aversion, cost reduction, etc.
Smart beta's variety of alternative index exposure can help you diversify your portfolio.
Smart beta strategies may be based on equity factors such as volatility, momentum, earnings or dividends, but factors also exist across asset classes. BlackRock offers several fixed income smart beta ETFs.
Smart beta funds are typically not actively managed. Their alternatively weighted construct, however, may provide for more frequent fund analysis and rebalancing than traditional index funds, giving them the potential to outperform a market index. Smart beta funds are often considered a hybrid of passive and actively managed strategies.
Investors can invest in smart beta funds managed with single or multiple weighting factors. A multi-factor smart beta fund may offer less risk from volatility.
Smart beta funds generally fall into four types of strategies. Choose the one that best aligns with your preferences:
An investor had a portfolio of six U.S and international active equity funds. The investor was concerned that the overall portfolio expenses would erode excess returns. Three expensive funds were identified as candidates for replacement.
Amid expectations for rising interest rates, an investor was looking to protect a portfolio of fixed income investments. The investor was also concerned about the lower levels of income they are receiving in the current low-yield environment.
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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 prospectuses, which may be obtained by visiting the iShares Fund and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
There can be no assurance that performance will be enhanced or risk will be reduced for funds that seek to provide exposure to certain quantitative investment characteristics ("factors"). Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. In such circumstances, a fund may seek to maintain exposure to the targeted investment factors and not adjust to target different factors, which could result in losses.
The iShares Minimum Volatility Funds may experience more than minimum volatility as there is no guarantee that the underlying index's strategy of seeking to lower volatility will be successful.
International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets or in concentrations of single countries.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in the value of debt securities. Credit risk refers to the possibility that the debt issuer will not be able to make principal and interest payments.
Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.
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 can be no assurance that any fund's hedging transactions will be effective.
Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
Buying and selling shares of ETFs may result in brokerage commissions.
Diversification and asset allocation may not protect against market risk or loss of principal.
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.
The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial professional before making an investment decision.
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The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Bloomberg, BlackRock Index Services, LLC, Cboe Global Indices, LLC, Cohen & Steers, European Public Real Estate Association (“EPRA® ”), FTSE International Limited (“FTSE”), ICE Data Indices, LLC, Nasdaq, Inc., NSE Indices Ltd, JPMorgan, JPX Group, London Stock Exchange Group (“LSEG”), MSCI Inc., Markit Indices Limited, Morningstar, Inc., Nasdaq, Inc., National Association of Real Estate Investment Trusts (“NAREIT”), Nikkei, Inc., Russell, S&P Dow Jones Indices LLC or STOXX Ltd. None of these companies make any representation regarding the advisability of investing in the Funds. With the exception of BlackRock Index Services, LLC, who is an affiliate, BlackRock Investments, LLC is not affiliated with the companies listed above.
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