This week, we speak with Andrew Ang, director of BlackRock’s $210 billion dollar factor strategies group. The former Professor of Finance at Columbia Business School is the author of Asset Management: A Systematic Approach to Factor Investing. Ang spent 15 years teaching at Columbia, where he also consulted for a variety of large institutions, including the trillion dollar Norwegian Sovereign Wealth fund.
In Ang’s view, factor investing is a way to both manage risk and enhance returns. Building on the classic Fama-Fench 3 factor model (size, value, and market risk), Ang focuses on 5 factors: Value, Size, Quality, (low) Volatility and Momentum. Blackrock also sees areas beyond equities as being subject to factor analysis, including Fixed income, commodities and currencies. He believes the application of data and technology leads to scale and lower costs.
Ang breaks the world of factors investing into 12 factors across 2 groups: Macro and Style factors. In Ang’s view, the big three under the Macro umbrella are economic growth, real interest rates and inflation, which account for 85% of market returns. Equities can achieve higher risk adjusted returns come from cheap and high quality stocks, along with momentum, size and low vol.
He also points out that individual factors are themselves subject to factors — “Meta-factors” — that Value gets cheaper and more expensive at times (e.g., relative to its own history), and that there can be momentum to Momentum (e.g., relative strength).
Ang points out that in 2018, the “Value” factor had the fourth worse value drawdown in almost 100 years of data going back to 1925, according to Fama-French data set.
You can stream/download the full conversation, including the podcast extras on Apple iTunes, Bloomberg, Spotify, Google Podcasts, Overcast, and Stitcher. All of our earlier podcasts on your favorite hosts can be found here.
Andrew Ang’s Favorite Books
Security Analysis: Sixth Edition by Benjamin Graham and David Dodd
(I suggested this book to Ang, who enjoyed it a great deal)