BlackRock’s decision to shift some of its equity funds towards a quantitative approach does not signal a move away from active management, about which it is still ‘very bullish’, according to the company’s chief executive Larry Fink.
Speaking at the Morningstar conference in Chicago, Fink said the firm’s decision to part ways with five managers and move seven traditional active equity funds over to a quantitative approach was about finding alpha not abandoning active.
‘We are not running away from active. We are not frightened of the move towards passives,’ he said. ‘Passive still represents 20% of the mutual fund business, so there is more hysteria than reality.’
He said large sums of money would continue to flow into index products but that managers who produced alpha, with consistency, would also see positive flows.
‘I do believe active is not dead,’ he said. ‘That is why we continue to invest in active both in fixed income and equity.’
Fink (pictured above) said active managers would need to find alpha in new ways, one of which would be mining the increased amount of data and information available today.
‘Because of the democratization of information many managers are having a harder and harder time to make alpha. We are very bullish on active management but nevertheless sources of alpha are still harder to come by…and you are going to have to find other sources,’ he said.
BlackRock’s quantitative team mines data, such as employee satisfaction and footfall patterns to find further information on companies.
‘There are many ways of looking at companies now which we have never even touched,’ said Fink. ‘For the last five years our quant equity team have had very good performance. Actually last year they did poorly but prior to that they did really well. This year they are on fire.’
At the end of March, BlackRock unveiled plans for a new range of quantitative funds, called Advantage, seven of which were previously active funds run by human stock pickers.
These funds were:
- BlackRock Global Opportunities
- BlackRock Global Small Cap
- BlackRock Master Value Opportunities
- BlackRock Master Large Cap Core
- BlackRock Flexible Equity
- BlackRock Master Large Cap Value
- BlackRock Emerging Markets Long/Short Equity
All the funds, except for the Large Cap Core and Large Cap Value funds, have underperformed their benchmarks and peer groups over the last three years.
Fink said the Advantage range would still be run with the involvement of active fundamental managers.
‘We want a holistic platform, similar to what Rick [Rieder] has done on fixed income, we are looking for a team on equities, which intersect the models and quant data with the fundamental side. We have done that on the fixed income and it’s what we are doing in equities, making sure there’s an interchange of ideas,’ said Fink.
‘The fundamental guys are sitting down with the model writers and giving insights into what they’re looking for to create different types of models.
‘We are trying to take the best of both platforms to come up with a comprehensive way of investing, obviously with the idea it will product better alpha, with great consistency.’