BlackRock’s Ang on Factor Investing

Andrew Ang, who runs factor investing at BlackRock, argues that factor investing remains “the language of investment excellence” despite naysaying by the likes of Vanguard’s Jack Bogle and smart-beta pioneer Rob Arnott of Research Affiliates. This according to a recent article in Forbes.

Black Rock, the article reports, has been “firing human stock pickers and betting that factor investing is the future of the struggling active-investment-management business.” It adds that Ang expects smart-beta ETFs to reach $1 trillion by 2020, and has focused his firm’s offerings on six factors; small-size, value dividend yield, momentum and quality (for return enhancement), and low volatility (to reduce risk).

Ang’s faith in the investment strategy, according to the article, is based on back-tested returns on decades of data, but he emphasizes that such data can be flawed so must be backed up by solid economic rationale. He argues that strictly adhering to older concepts (such as those touted by Benjamin Graham) in today’s environment would be “like trying to write a play with a quill because Shakespeare used to.”

The article offers a contrarian view from Princeton economist Burton Malkiel: “Smart beta may not be smart investing,” he argues, adding, “BlackRock has realized stock-picking active management hasn’t worked—so is there some way to continue to get the fees?”